Mortgage broker Ron Butler says many would-be homebuyers are opting to wait for more interest rate cuts from the Bank of Canada before jumping into the market, while others are hoping to see prices drop further.
“Some potential homebuyers are thinking: ‘Well, there’ll be more cuts, I’ll wait and see,’ and you also have people sitting back and saying: ‘You know what, maybe the prices will come down too,’” Butler, of Butler Mortgage, told BNN Bloomberg in a Friday interview.
“(It’s) a classic deflationary sit-back-and-wait consumer pause to see what happens.”
The Bank of Canada lowered its overnight lending rate to 4.25 per cent last month and signalled that it’s prepared to drop rates further as long as inflation continues its downward trend.
It was the third-straight quarter percentage point rate reduction by the central bank after it raised its headline rate to five per cent in July of last year.
Butler said that one thing keeping the recent rate cuts from spurring any meaningful activity in the housing market is uncertainty around how much a seller will be able to get for their home when looking to upsize.
“If you own a home and you want to go to a bigger home, you’re never quite sure what you’re going to get for your home,” he said.
“We went through 14 years where you knew almost to the penny what you were going to get because of generally a rising price environment, so that creates a challenge.”
Butler also noted that many Canadians are in uncertain or precarious employment situations, and that “people aren’t always interested in buying a new home when they’re worrying about their jobs.”
Condos under price pressure
Butler said that when it comes to the condo market, virtually all speculative investors have left the space as prices have fallen and sales have slowed.
“We don’t see any investors in the condo market; absolutely none,” he said.
“Over the next two years, as much as 60,000 units (are) coming on stream… based on some delays and then some big activity about five or six years ago and boy, they are under price pressure, there’s no question.”
Butler said that this seemingly over-supplied section of the market is starkly contrasted with nationwide calls for increased housing supply – a dynamic he called “absolutely puzzling.”
“It’s just been shocking to me. Unfortunately, we probably built a lot of the wrong thing, the condos are just too small, and they’re just meant for investors,” he said.
Butler said that for those who are entering the housing market, variable-rate mortgages are still the smartest option.
“Get variable, that’s probably the only sure thing that you know is coming down,” he said.
“Then you have a lot of options; you can convert for free to a fixed rate next year and maybe your timing could be great.”