ANALYSIS: Interest rate cuts not expected to boost London home prices

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If you were counting on interest rate cuts leading to a jump in home prices before putting your property up for sale, you may be in for a decent wait.

London is one of a few markets in Canada where home prices are expected to stay flat or decline in 2024 despite a widely expected interest rate drop by the Bank of Canada on Wednesday, according to the latest projections by realty giant RE/MAX.

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“Despite some consumer confidence starting to return to the market this season, the reality is Canadians are still grappling with some serious housing affordability challenges rooted in lack of supply,” Christopher Alexander, RE/MAX Canada’s president, said in the report.

“Yes, borrowing is becoming less expensive, but this won’t make housing affordable in the long run.”

According to RE/MAX’s fall outlook, 25 of 33 markets analyzed will see prices go up this fall, with the increases ranging between one and six per cent.

In London’s case, the projected increase is only 0.5 per cent, which would make the average home selling price $657,865, or about $3,300 more than July’s average price.

Other markets expecting similar or worse performances include Toronto, Hamilton, Burlington, Kitchener-Waterloo, Charlottetown and North Bay, according to RE/MAX.

It’s a significant turnaround for London’s housing market, which, during the pandemic years, was among the top performing in all of Canada.

That all came to an abrupt end when the country’s central bank began raising interest rates to rein in runaway inflation in early 2022.

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This summer, the Bank of Canada began cutting its key lending rate that now sits at 4.5 per cent after cuts in June and July.

So far, however, the two cuts have done little to move the needle locally, with London’s housing market entering into buyer’s territory in July and 2024 shaping up to be the second worst year for home sales since 2000.

“Based on what we’ve been seeing so far over the last several months, and based on the amount of inventory that we have, we don’t see a big jump in the average price,” said Carl Vandergoot, broker and owner of RE/MAX Centre City Realty Inc in London.

“I think, we’re just trying to be realistic.”

Vandergoot said part of the reason average prices will remain stable involves how poorly the top end of the market, which can bring averages up, has been performing this year.

In 2024, for instance, the number of homes priced at more than $1 million has dropped significantly, with only 275 such homes sold in the first half of this year. That compares to 444 at the same point in 2021 and 867 in 2022.

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“Homes that are over $1 million are not selling as quickly right now, simply because it’s harder for buyers to qualify for a mortgage,” Vandergoot said.

“We’re seeing lots of activity in homes priced under $800,000, $700,000, so that’s why we’re seeing our average price not changing a lot.”

The Bank of Canada is widely expected to continue bringing its interest rate down.

According to a recent poll by Bloomberg, for instance, economists see five cuts of 25 basis points at the next five meetings — including one on Wednesday, until the benchmark overnight rate is at 3.25 per cent, before a pause in April.

But such a path could result in home sales picking up, but not before the end of the year, Vandergoot said, adding London has enough supply of homes to absorb any jump in demand in the short term without impacting prices too much.

“We have a perfectly, really balanced market right now, which is good for buyers and really good for sellers,” he said.

“Demand is still there, so I think that once we find the sweet spot on the rates, we might start to see those prices come back up again. . . . This fall is really going to set up the market quite nicely, I think, for 2025.”

With files from Bloomberg News

jjuha@postmedia.com

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