Buyer Confidence Wanes as Mortgage Rates Rise, but Hope Revives with Lower Inflation

Last month, inflation witnessed a surprising decline to 3.8 percent, easing some of the tension for homeowners and economists, as reported by Statistics Canada. This shift in the inflation rate comes amid fears of further interest rate increases by the Bank of Canada.

Currently, the overnight lending rate is at 5 percent—a notable high not seen in years—with the five-year mortgage rate hitting a 15-year peak at 5.49 percent. These rates are causing concern among prospective homebuyers and existing homeowners as they ponder the impact on the housing market.

A Zoocasa survey recently explored these concerns, finding a significant 79.1 percent of participants wary that another hike in mortgage rates could jeopardize their housing plans. Particularly vulnerable are first-time buyers, with over 86 percent voicing unease about the potential increase in rates.

In response to rising concerns, the Bank of Canada held off on rate increases in September after three previous hikes. Public reaction to this pause has been mixed: about a quarter of survey respondents saw it as a positive step, but just over 16 percent disagreed, reflecting the complexity of the market’s current state.

The survey also highlighted dissatisfaction with government action on housing affordability and supply. A majority disagreed with the effectiveness of governmental efforts to resolve the affordability crisis. Forty percent criticized the government’s handling of the housing shortage, while only a fraction showed support or neutrality.

The challenge for federal initiatives is set to grow as plans progress to welcome over 485,000 new residents each year over the next two years. This expected increase in population will further pressure the housing demand.

Despite these economic hurdles, the survey shows a resilient spirit among would-be buyers, with over half still eager to purchase a home soon. Around 7 percent plan to buy in the next 4-6 months, and 5.4 percent within the next 1-3 months.

The Canadian real estate market is navigating through uncertainty, but a substantial number of Canadians remain steadfast in their pursuit of homeownership. The future trajectory will be determined by how economic conditions and government policies evolve.