2024 is set to be a rebound for Ottawa’s Real Estate Market

We delved into the impact of media on real estate activity and prices over the past year and a half. Since the Bank of Canada embarked on a series of interest rate hikes, real estate has experienced a downturn across most parts of the country, with a few exceptions. In Ottawa, home prices have seen declines ranging from 10-20% in most cases. The townhouse market was particularly affected, while condos, which didn't experience significant fluctuations during the pandemic, remained relatively stable, only to finally decrease by 5-10% in downtown areas.

Surprisingly, the luxury market didn't seem to be affected until the latter half of 2023, primarily because luxury properties are typically not as leveraged as average homes.

We explored the factors necessary for a rebound in home prices, including lower inflation figures (CPI), higher unemployment rates, and lower GDP productivity. These metrics have shown a trajectory towards lower rates, and the media is now catching on as bond market investors take notice and reduce their yields. Consequently, we're witnessing significant drops in mortgage rates for insured deals (less than 20% down payment), while other types are also heading downwards. The early 2023 rate decreases resulted in a 5-10% increase in the average resale home price in Ottawa, providing a promising forecast for the new year.

The paradox arises from the Bank of Canada and the Government of Canada aiming to decrease home prices to maintain affordability. However, decreasing sale prices also lead to reduced profits for builders, causing them to slow down or halt construction efforts in anticipation of more profitable times. Throughout this scenario, the number of new builds (housing starts) decreased while immigration continued to increase, inadvertently creating a widening gap between supply and demand.

Given that the middle class holds the largest share of mortgages, any interest rate hike would impact this population more than wealthier individuals. The Bank of Canada acknowledges having only one tool to govern the health of the economy and currency, but perhaps it's time to explore whether the Bank of Canada should have more tools at its disposal.

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