Overnight Rate Trends Create Optimism

National home sales have remained little changed from month to month since the summer of 2022 and, in fact, posted modest back-to-back monthly gains in February and March 2023, says the Canadian Real Estate Association (CREA). With nearly a year without any large declines, the downward adjustment to sales activity from rising interest rates and high uncertainty looks to be in the rear-view mirror. Some buyers are expected to emerge back into the housing market, after waiting on the sidelines for added certainty around mortgage payments and property value – two important signals that could be here. First was the Bank of Canada indicating a pause, likely a top, for interest rates in January 2023, followed by meetings in March and April where it did not raise the overnight rate. And second, as housing markets have been tightening to begin the year, it looks as though home prices, which had been declining steadily since last March, have also now levelled out. Risks to this forecast include a worsening of Canada's housing supply issue faced across the entire continuum including in the existing home market. New listings have been dropping fast and are currently at 20-year lows (a downside for the sales forecast and an upside risk to the average price forecast); and whether an expected short and mild recession in the middle of 2023 turns out to be more severe and longer lasting than anticipated.