Experts say rate cut could spur demand as Ottawa home sales fall in May

Big home for sale

New home listings soared in the capital last month, but demand failed to keep pace as sales declined from the previous year in what has been an “unsteady” spring housing market, the Ottawa Real Estate Board says.

A total of 1,545 housing units changed hands in May, OREB said Thursday. That’s a 9.2 per cent drop from the same month in 2023 and 13.2 per cent below the 10-year average for May.

At the same time, new residential listings jumped 26.2 per cent year-over-year, with 3,034 new properties being put on the market. There were a total of 3,552 homes listed for sale in May, up nearly 60 per cent from a year earlier.

OBJ360 (Sponsored)

OREB president Curtis Fillier said the surge in new listings suggests sellers are “more confident” their properties will find a buyer as overall sales have increased year-over-year since the beginning of January.

“Some buyers, however, were likely waiting for the Bank of Canada’s interest rate announcement to see if it would affect their purchasing power,” he added in a statement on Thursday.

While the Bank of Canada’s decision to lower its key interest rate a quarter-percentage point to 4.75 per cent earlier this week is “good news,” Fillier said it won’t change the fact that home prices remain out of reach for many potential buyers.

“Interest rate cuts, for example, can’t help get more homes built and make them affordable when the City of Ottawa is hiking development fees – a counterproductive move that OREB is firmly against,” he said, referring to city council’s recent decision to raise fees charged to developers when building new homes.

The average selling price of a home in Ottawa last month was $690,683, an 0.8 per cent increase from May 2023.

The benchmark price for a single-family home was $736,000, up 1.1 per cent year-over-year, while the benchmark price for a townhouse/row unit rose 2.1 per cent to $517,500 and the benchmark apartment price ticked up two per cent to $425,000.

Earlier this week, real estate market analysts told the Canadian Press the Bank of Canada’s move to cut its key interest rate could be the sign that many would-be homebuyers have been waiting for to make their move.

Around 56 per cent of Canadian adults who have been active in the housing market said they have been forced to postpone their property search since the bank began raising its key lending rate from near zero in March 2022, according to a Leger survey earlier this year commissioned by Royal LePage.

‘Pent-up demand’

Among those waiting on the sidelines, just over half said they would resume their search if interest rates went down, including one-in-10 who indicated a 25-basis-point drop would be enough for them to jump back in.

“There certainly is pent-up demand,” Karen Yolevski, chief operating officer of Royal LePage Real Estate Services, said in an interview.

“Typically when rates go down, prices go up. So this would be the time where people come off the sidelines, knowing and anticipating that prices are likely to rise.”

Yolevski cautioned the market rebound “won’t be an overnight effect” as Canada is likely to see a more gradual return to higher sales levels. The Leger survey found more than two-in-five prospective homebuyers were waiting for a cut of at least 50 or 100 basis points before resuming their search.

“People purchase homes less so on the sticker price, the actual sale price of the property, but more so on the monthly carrying cost of the property,” said Yolevski.

“So interest rates going down will, over time, lower monthly carrying costs and that will ease some of the burden that homebuyers feel, particularly first-time buyers, if they’re feeling stretched.”

Ontario Premier Doug Ford said he was optimistic the central bank’s decision would help spur housing construction in the province.

He said the first cut was a good start but that the Bank of Canada should lower interest rates as quickly as it raised them.

“I believe that when you lower the interest rates, the homes will pop up like mushrooms all over the place,” Ford told reporters on Wednesday.

“I’ll be all over the Bank of Canada and I’ll never stop until they continue lowering the interest rates.”

Variable-rate mortgage relief

But TD Bank senior economist James Orlando predicts the path for rate cuts going forward will be slow, despite the Bank of Canada acknowledging the economy doesn’t need such high interest rates any longer.

“It will proceed cautiously. It must ensure that inflationary pressures don’t rebound like they have in the U.S. in recent months,” he said in a note.

“It also doesn’t want to reignite the housing market, where prospective buyers have been waiting for greater interest rate certainty. We expect the (bank) is on a cut-pause-cut path, with the next cut likely occurring in September.”

The June decision is welcome news for homeowners with variable-rate mortgages, said Victor Tran, a mortgage and real estate specialist for Ratesdotca.

The company estimated that for every 25-basis-point decrease, floating variable-rate mortgage holders can expect to pay $15 less per $100,000 of mortgage.

“Those up for renewal in the coming months are facing monthly payment increases of up to 60 per cent, according to the Bank of Canada’s annual Financial Stability Report, and a 25-basis-point rate drop is a step towards easing those increases,” Tran said in a press release.

“We will likely see an uptick in mortgage-holders considering variable rates on renewal to take advantage of the downswing, though the spread between fixed and variable is still significant and the Bank of Canada may spread decreases out over a number of months.”

In other news, OREB announced that Nicole Christy has joined the organization as CEO effective June 3. 

Christy previously served as vice-president of corporate governance and leadership development for the London and St. Thomas Association of Realtors. 

– With additional reporting from the Canadian Press

Get our email newsletters

Get up-to-date news about the companies, people and issues that impact businesses in Ottawa and beyond.

By signing up you agree to our Terms of Use and Privacy Policy. You may unsubscribe at any time.