Would-be homebuyers are in limbo and only the Bank of Canada can free them
It’s Canada’s worst-kept economic secret.
Tens of thousands of prospective homebuyers have their fingers hovering over the “buy” button. But they’re waiting for one thing before pressing it: the Bank of Canada to give rates a haircut.
A BMO poll by Ipsos throws a hard number at us — 72 per cent of Canadians won’t buy until rates come down.
Buyers are sitting on their wallets for two big reasons: First, thanks to record unaffordability, people need lower rates to pass the government’s mortgage stress test — which forces borrowers to prove they can handle payments at rates that are 200-plus basis points (bps) higher than the contract rate.
Lower mortgage rates help in that sense, given they lower payments and therefore reduce the percentage of income devoted to payments. Every percentage drop in average rates beefs up buying power by over eight per cent. That injects over $50,000 into peoples’ maximum home-buying budgets based on Canada’s average home price.
Secondly, more buyers need to believe that it’s safe to go back into the water. That’s particularly true for those who think we’ve got a date with recession and higher mortgage defaults (despite the fact leading economic indicators are turning higher). It’s also true for investors who believe they’ll buy cheaper if inflation returns, immigration gets cut back and new rental supply causes rents to dive.
There’s always some share of homebuyers with such anxieties, and there’s validity to some of these risks. Suffice it to say, however, rate cuts would go a long way toward offsetting such concerns.
Meanwhile, governmental home-building efforts are moving at the speed of a Toronto traffic jam — don’t expect a payoff for several quarters. As of the latest CMHC data, we’re
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