Two rate cuts later: where are the buyers?
Underwhelming Response to Rate Cuts
Sales volumes remain 20 to 30% below the seasonal norm, with new listings higher than usual. We now have the most homes for sale in five years, with 40% more active listings than normal.
It seems like most people that were waiting for the first sign of rate cuts to buy, transacted in early spring, when sales volumes were back to seasonal norms. Since then prices have slid down a little bit.
Mortgage Rate Projections
It doesn’t look like mortgage rates will change much from here, according to BCREA:
“We should expect further rate cuts this year and next, with an ultimate destination of a 2.75 per cent overnight rate. The historical average spread between the Bank's overnight rate and 5-year fixed mortgage rates is about 210 basis points. With most lenders now offering between 4.85 and 5 per cent, fixed mortgage rates have essentially already priced in the majority of expected rate easing though we could see fixed rates ease a bit further. This is because these rates are forward-looking and already factor in expected future rate cuts. “
Variable rates would also be around the high 4% range at the end of 2025.
Buyers starting to poke around again
On a positive note, we are receiving more early-stage inquiries from buyers who are noticing the increased inventory and quality homes available for sale. After years of shortages and competitive bidding wars, some buyers want to take advantage of the slow market. This renewed interest is often a precursor to a more active market in the following year.
I personally anticipate that sales in the fall will start trending back to average levels, though inventory will likely remain elevated due to a higher-than-normal rate of new listings. We’re seeing more new listings right now because of elevated interest rates, mortgage renewals, a slowing economy, and a weaker job market. Winter will likely be seasonally slow as usual, but lower variable rates in the spring will help ease mortgage renewals and potentially start constraining new listings again, hopefully creating a balanced market in 2025.
Opportunities for Buyers and Sellers
This market presents excellent opportunities for upsizers, with Subject to Sale offers back on the table.
First-time homebuyers are also benefiting from ample selection, quality properties, strong negotiating power, and reduced time pressure.
Impact of Upzoning and New Tenancy Laws
In July, almost every single-family home lot in the Lower Mainland was upzoned to allow multi-unit developments. So far, this has had a negligible effect on land values, except for some properties near SkyTrain stations, which can be assembled and sold at a higher value if the house is old and not worth much. Builders are currently cautious about starting four-plex and six-plex projects, as this is new territory with municipalities. For most single-family home properties, the highest and best use remains as a single-family home, especially if the home is newer.
New tenancy laws have also recently come into effect. The BC government initially required a minimum of four months to evict a tenant for landlord use of property but has since amended this to three months for buyer occupancy. This change, while still not ideal, makes tenant-occupied properties more feasible for purchasers. Landlords selling their properties also have the option of a tenant buyout, which can make the property more sellable, though it depends on the cost of the buyout and if a tenant wants more than 3-4 months rent as a buyout, it might not make economic sense.
Jesse Kleine
Kleine Real Estate Team
Sutton West Coast Realty