RentFund™ July Market Update

RentFund™ July Market Update

The Bank of Canada (BoC) delivered exactly what the market anticipated this month with a second interest rate cut since 2020, trimming another 25 basis points. This brings us closer to a more manageable financial landscape, though the future remains uncertain. While no one can predict with absolute certainty what the economy or stock market will do in the short term—where things are often driven by sudden announcements like an inflation report—the long-term outlook tends to be more stable. The BoC expects that the government’s focus on reducing non-permanent resident numbers will slow population growth by 2025. This could lead to a softer economic and labor market, as well as an oversupply in housing, pushing inflation closer to the target level this year and next.

We’re likely looking at two more rate cuts before year’s end, potentially dropping the overnight rate to a still-restrictive 4% by the close of 2024. But let’s not get too comfortable—risks like global tensions, unexpected spikes in housing prices, and wage growth outpacing productivity could derail these plans. With cost of living concerns taking center stage in elections worldwide, pressure is mounting on central banks and politicians to find real solutions.

But it’s not all doom and gloom. Think of navigating this economic storm like driving through heavy rain: keep your eyes on the horizon. Historically, investors have a 72% chance of seeing positive returns in any given year, and that likelihood jumps to 88% when you stretch the timeline to three years. The message is clear—stay invested, stay focused, and you’re likely to come out on top when the dust settles.

Now, let’s zero in on the Canadian housing market for a mid-year check-in.

Rental Market: Canada’s housing supply problem is real, but it’s not stagnant. Builders kicked off construction on 240,000 units in 2023, responding to the shortage of rental properties and soaring rent prices that have developers and policymakers on high alert.

Homeownership: Inventory is rapidly rebuilding, likely due to sellers trying to time their moves before further rate cuts drive demand back up. With new condos going up and some homeowners struggling, we’re seeing more properties hit the market.

Prices/Affordability: Price growth is slowing or stabilizing, as many buyers are waiting for more significant rate cuts before diving in. The good news? Recent drops in interest rates and home prices have lowered the average cost of owning a home in Canada by 3.8% in Q4 of 2023. As the BoC eyes a policy rate of 3% by the end of 2025, there’s room for ownership costs to fall further.

Final Thoughts: The BoC’s consecutive rate cuts in June and July gave a slight boost to Canada’s housing market, with a 3.7% increase in activity last month compared to May. More rate cuts may entice buyers, and rising inventories are providing more options. While explosive population growth in Calgary and Edmonton is driving up property values, prices in Ontario and British Columbia remain mostly flat. It will take time—and more substantial rate cuts—for homeownership costs to drop enough to spur more buyers into action.

For those struggling to save for a downpayment amid high living costs, tools like FHSA, TFSA, HBP from RRSP, regular savings, and Rent Fund are crucial. Remember, this isn’t a sprint; it’s a marathon. These tools are here to help turn your homeownership dream into a reality, one step at a time.

Disclaimer: Information compiled from sources including REBVG, FVREB, CREB, RAE, RPS, Royal LePage, Statistics Canada, RBC Economics, and the Canadian Real Estate Association.