It's Canada’s worst-kept economic secret. Tens of thousands of prospective homebuyers are hesitant to purchase, waiting for the Bank of Canada to lower interest rates.

A BMO poll conducted by Ipsos reveals that 72% of Canadians won't buy until rates decrease. Buyers are reluctant for two main reasons: record unaffordability and the mortgage stress test. This test requires borrowers to prove they can handle payments at rates 200+ basis points higher than the contract rate.

Lower mortgage rates help by reducing payments and increasing buying power. Each percentage drop in rates boosts buying power by over 8%, adding over $50,000 to the maximum home-buying budget based on Canada’s average home price.

Additionally, buyers need confidence that it’s safe to re-enter the market, especially with concerns about a potential recession and higher mortgage defaults. Investors also worry about buying cheaper if inflation rises, immigration slows, and rental supply increases.

Government home-building efforts are slow, with CMHC data showing only half the needed homes are being built to meet long-term demand. Despite this, average weekly earnings have risen 4.4% annually since the pandemic, providing some financial relief.

Some buyers are acting now, thinking conditions are favorable. Although national inventory is up, average home prices have increased for five consecutive months, indicating a strong market.

Predicting home prices is challenging, but certain trends are clear: household growth from immigration, easing core inflation, and rising incomes will likely support higher home prices. However, rising defaults and unemployment pose risks. Ultimately, Canada's supply-demand imbalance and potential rate cuts could keep the housing market robust.

For more insights, stay updated with our latest articles.