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Canadian housing market 2024: Opportunity amidst rate hikes

The Canadian housing market is undergoing subtle and significant changes in 2024, providing challenges and opportunities for homeowners and investors alike. With rates still elevated and a broader market recovery looming, many investors are weighing their options. Here’s what you need to know about the Canadian housing sector and what it means for your investments.

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Key Takeaways:

  1. Canadian housing market showed slower market activity in the first quarter of 2024 due to the Bank of Canada’s sustained high policy rate. Still, an uptick in market activity is expected once rate cuts happen in the latter half of the year.
  2. Population growth and housing affordability continue to be essential factors driving market activity within provinces.
  3. British Columbia and Ontario are experiencing stagnant home sales, despite increasing inventory which is keeping real estate prices depressed.
  4. Amur Capital continues to innovate in the mortgage investment sector with improved returns and increased assets under management (AUM) in its Mortgage Investment Corporations (MICs).

A busier 2024 for the Canadian housing market

Interest rates continue to be the dominant factor in Canada’s housing market in 2024. According to CMHC’s Housing Market Outlook, elevated interest rates will hamper the construction industry due to the rising costs of financing. With supply challenges and housing affordability declining, first-time homebuyers may need help financing new homes. As borrowing costs rise, influenced by the Bank of Canada’s interest rate decisions, the affordability and accessibility of homes are expected to be impacted.

However, changes in fixed mortgage rates may provide a turnaround in the second half of the year, as economists project interest rates will decrease in late Q2, prompting a rebound in housing market activities.

Slower activity, softer prices in first half

As the Bank of Canada maintains its policy rate at a two-decade high of 5% (unchanged since July 2023 after a series of aggressive rate hikes), slower market activity is forecasted to persist. This was prevalent in the Q1 of 2024.

According to the Canadian Real Estate Association (CREA), the number of newly listed properties declined 1.6% month-over-month. Despite home sales activity being up by 0.5% month-over-month in March, it was still 10% lower than the ten-year average for March. Likewise, the average home price is primarily unchanged at $729,700, falling by 0.3% month-over-month but up 0.7% year-over-year.

Still, the last week of March and early April have seen an uptick in home sales and listings, forecasting an activity ramp up by another 7.8% in national home sales by the end of 2024.

Residential Activity in Canada 2024 Graph
Canadian Real Estate Association (CREA). Illustration from Amur Capital. 

Broader market recovery in second half

According to CMHC, a slew of factors, including pent-up demand for new homes, a spike in rental prices, and hopes of an interest rate cut, may fuel sector activity in the latter half of the year. Here’s the regional outlook:

British Columbia and Ontario

Since British Columbia and Ontario lead the other provinces with the highest home prices, they are expected to drive the decline in home sales as potential buyers cannot afford certain types of homes, and developers struggle with financing costs. However, expectations of interest rate drops by the Bank of Canada are expected to play a crucial role in this recovery phase, enhancing housing affordability.

In Metro Vancouver, resale activity is expected to increase due to the demand for lower-priced apartments and townhomes, with South Fraser forecasted to have the largest share of the resale market. Home sales are forecasted at 46,200 units, with an average price of $1.25 million.

a graph of sales growth

Source: CMHC.

On the other hand, Toronto is forecasted to resume growth in average home prices, with ground-oriented housing leading the pack due to increased demand from households seeking more living space. Home sales are forecasted to be 88,300 with an average price of $1.20 million.

Alberta and Saskatchewan

The Prairie provinces of Alberta and Saskatchewan are expected to perform well due to their affordable home prices and abundance of home construction projects.

In Edmonton, housing affordability continues to attract more migrants than in Toronto and Vancouver. Resale transactions may experience a modest growth at 30,000 units, with an average price projected to grow to $420,000 due to limited supply.

a graph of growth in canada

Source: CMHC.

Meanwhile, Saskatoon housing prices are forecast to rise two percent to nearly $384,000, with 4,000 units in sale. Like other cities in the region, low inventory and high-interest rates remain the biggest challenge for homebuyers.

Rising population vs declining housing affordability

The Canadian housing market is also significantly influenced by booming population growth, which continues to drive demand for homes.

In 2023, Canada had the fastest population growth in any quarter since 1957, with more than 430,000 during the third quarter, pushing the number of residents past 40 million. Comprised mostly of immigrants and temporary workers, officials say the increase is adding strain to the housing market and healthcare system.

Positive outlook for capital markets, alternative investments

According to CBRE, a recovery in the commercial real estate investment market is expected in the latter half of 2024, as real estate activity increases with spreads normalizing closely in line with the long-term historical average. Driven by population growth, demand for all types of real estate will continue in Canada, outpacing any G7 country in investment activity levels.

Amur Capital continues to grow its portfolio

Despite the uncertainty in the housing market and overall economy in Q1 of 2024, the demand for mortgages displays resilience. Consequently, Amur Capital sustained its growth in its assets under management (AUM) for its Mortgage Investment Corporations (MICs).

Amur Capital Conservative Income Fund (ACCIF), which offers a passive investment opportunity with a 10.86% unaudited annualized return based on Q1 performance and a focus on residential first mortgages, experienced an increase in AUM from $197 million in 2023 to $203 million in March 2024.

Amur Capital Income Fund (ACIF), which balances capital preservation and stable income with a 12.23% unaudited annualized return based on Q1 performance, continues to be a reliable stream of investment income for investors since 1984. ACIF posted an increase of 4.4% in AUM from $784 million in 2023 to $819 million in March 2024.

Amur Capital High Yield Fund (ACHYF), which focuses on higher yielding mortgages over shorter terms, experienced a considerable growth of 27% in its AUM, from $22 million in 2023 to $28 million in Q1 of 2024. With all three funds demonstrating resilience and growth in the face of market uncertainty, Amur Capital continues to solidify its position as a reliable investment choice for the future.

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Despite rising prices in the rental and resale markets, Canada’s housing market is expected to continue to be in an upward trend in 2024. With expectations of rate cuts this year, fixed-rate mortgages will likely remain attractive, potentially fueling further demand in the housing market.

The cost of borrowing is currently high, as the Bank of Canada sustained its 5.00% policy rate since last year. However, housing prices are still lower than record highs during the pandemic. It’s essential for investors to carefully consider their financial situation, market trends, and long-term investment goals before making any decisions.

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