Economic Backdrop and Financial Performance Objectives
Canada's housing market: still adjusting to high interest rates
■ The market cooled again in the fall of 2023 after the Bank of Canada's additional rate hikes in June and July—as well as expectations
that it will keep rates high for longer-sent many buyers to the sidelines. Home resales have softened back to historically low levels in
most markets (with some exceptions in the Prairies). They are likely to stay weak until interest rates come down materially (RBC
Economics expects our central bank to start cutting around mid-2024). That said, early signs of an upturn have emerged as 2024
rolled in, which suggests the correction may have run its course. The sharp loss of affordability during the pandemic, however,
continues to weigh on property values. RBC Economics expects them drift lower over the first half of 2024.
■ Canada's longer-term housing market fundamentals remain solid. Immigration (for which targets will rise to 500,000 annually by 2025
and 2026) will be a major driver of housing demand for years to come. Already-low housing inventories could fall further if
homebuilding continues lag demand. Significantly boosting housing supply will be a challenge amid skilled trade shortages, lengthy
(and costly) project approval processes and often restrictive zoning regulations across Canada.
■ Lenders maintain strong underwriting discipline and require extensive documentation.
Most mortgages held on balance sheet and conservative lending policies have led to low delinquency rates.
Demand-supply conditions have rebalanced
Sales-to-New Listings Ratio (1)
(Residential unit sales to new residential listings)
Higher rates are keeping debt service costs elevated
Household Debt Service Costs (2)
(Mortgage & non-mortgage principal & interest
payments as a % of household disposable income)
1.00
16
0.90
0.80
Seller's market
14
0.70
12
0.60
0.50
Balanced market
10
0.40
0.30
8
Buyer's market
0.20
6
0.10
0.00
4
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
(1) Canadian Real Estate Association, RBC Economics. (2) Statistics Canada, RBC Economics.
49 | CANADIAN HOUSING MARKET
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
RBCView entire presentation