Canadian Real Estate Market: Buying Opportunity Still Elusive Amid High Mortgage Rates, Says BMO
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BMO Capital Markets has cautioned that Canadian real estate is not yet a viable buying opportunity. In May, major markets like Toronto and Vancouver experienced significant declines in home sales—13.3% and 18.5%, respectively—compared to the previous year. This downturn has led to a growing inventory, with Toronto's sales-to-new-listings ratio (SNLR) dropping below 30%, marking the worst demand balance for May ever recorded in the region. Such conditions typically indicate a buyer’s market, where prices are expected to fall until demand improves.
Despite these weak sales, home prices have remained relatively stable, as sellers resist price cuts in anticipation of future rate cuts. However, BMO notes that mortgage rates are unlikely to decrease significantly in the short term. The Bank of Canada's recent decision to hold rates places the average variable mortgage rate between 4.25% and 4.50%, with the lowest available 5-year fixed rate around 4%. Rising inflation expectations have led to climbing bond yields, which further diminish the likelihood of substantial mortgage rate relief.
BMO suggests that a meaningful recovery in home sales won't occur until mortgage rates fall below 4%. However, with inflationary pressures persisting, such a rate decrease seems unlikely in the near future. For prospective buyers, this means that while they may have more negotiating power in the current market, the anticipated price reductions may not materialize until broader economic conditions improve.
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