Money123: What rate cut? Housing market’s still asleep

Muted impact from 1st rate cut

Housing markets, particularly in the country’s most expensive cities, did not show renewed signs of life after the Bank of Canada’s first interest rate cut in more than four years last month.

Fresh data from local real estate boards over the past week shows that buyers were still hesitant, even amid a 25-basis-point rate cut in June.

First-time buyers are still priced out amid modestly rising home prices and still-elevated borrowing costs, experts told Global News. Existing owners, meanwhile, are selling first and buying second, leading to a glut of properties on the market with few engaged buyers.

“So many cities and people are waiting for more favourable buying conditions, and it does, unfortunately, come down to interest rates,” said Re/Max Canada president Christopher Alexander. “We’re still at the mercy of the Bank of Canada at the end of the day.”

The Bank of Canada’s next interest rate decision is set for July 24, with Alexander arguing a cut there could set housing markets up for a “pretty robust” September.

Read more to find out what the latest outlooks for home prices are expecting through the rest of the year.

Rent’s big monthly drop

While it might take longer for affordability to return to the ownership market, there are signs of relief materializing for renters.

The average asking rent across Canada declined 0.8 per cent from May to June, marking the largest monthly drop in more than three years, according to data released this week from Urbanation and rentals.ca.

Toronto and Vancouver, two of Canada’s most expensive rental markets, again saw annual declines in asking rents last month.

But while many cities are seeing yearly and monthly drops in asking rents, it’s a different story depending on where you look.

Edmonton was the leader for apartment rent growth among Canada’s six largest cities for a sixth consecutive month, the report said. Average asking rents rose 14.3 per cent to an average of $1,564 in June.

Relatively affordable destinations are seeing monthly rent costs bid up due to competition from renters moving away from Ontario and British Columbia, experts say.

Read more to find out what’s happening locally in your rental market.

Household finances in jeopardy

Any progress in taming rents or other fuel for inflation isn’t necessarily translating to household budgets yet.

A new study by TransUnion Canada released this week found 46 per cent of Canadians’ household finances were worse than planned at this point in 2024, and 58 per cent reported they’re not optimistic about what’s to come financially in the next 12 months.

Easing in the headline inflation figure hasn’t erased the rapid climbs in prices over recent years, and the quarter-point cut from the Bank of Canada is likely not sufficient to deliver material relief to many households, explains personal finance expert Rubina Ahmed-Haq.

“In many cases, it means maybe $50 or $60 in your pocket every month if you have a very big mortgage, and so that’s not really life-changing money,” she says.

Despite the pessimism, experts who spoke to Global News say there are ways to mitigate impact on a budget.

Read more to find out how Canadians are coping with financial pressures.

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– THE QUESTION –

“How much risk can I tolerate in my investments if I’m hoping to buy a home in the next five years? I’ve gamed out that I can basically save $18,000 a year or so just putting money into a first home savings account. In five years, that will get me around $90,000, which should be enough for a downpayment on the kind of home I expect to need. Of course, I don’t see much value in it just sitting there… can I afford to invest it, or is it safer in a savings account or GIC? I’m looking at five years realistically but if something happens and I can pivot to buy earlier, I don’t want to have thrown any money away if I need to pull out sooner.”

— A Money123 reader 

“Five years is the minimum amount of time to invest in equities after a market correction in order to allow enough time on average for the market to recover and not lose your capital. The idea is to avoid the scenario of buying equities, have the market go down, and then lose some of your capital by the time you want to purchase the house.

The amount of risk that you can tolerate I would say is zero. Rather than investing in equities or keeping the money in cash, it can be invested in a guaranteed investment product (GICs or individual bonds), or park the cash in a high interest savings account, money market mutual fund or a cash ETF. A cash ETF is an Exchange Traded Fund that invests in short term securities like money market instruments, GICs, short bonds and Treasury Bills. The rate of return is typically higher than a bank account and the money is liquid, meaning that you can access it within days of selling it.

If you need the money to purchase a house before the five-year period, these products can accommodate that as well. If you are purchasing GICs or individual bonds, these products should be held to maturity to obtain the guaranteed rate. If you want flexibility from now until the time of purchasing the house, the High Interest Savings accounts, money market funds and cash ETFs are the best products. All of the products mentioned can be purchased in a First Home Savings Account (FHSA).”

– Joe Barbieri, financial consultant, Joe the Investor

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