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With rate cuts in sight, housing market to bottom in Q3: Deloitte Canada

The firm sees the Bank of Canada cutting rates starting at the end of this year

TORONTO, ON. A home sold sign last week in Toronto east side north of Danforth.File Photo for any use.(Rene Johnston/Toronto Star)        (Rene Johnston/Toronto Star via Getty Images)
Deloitte Canada is forecasting the Canadian housing market will bottom out in the third quarter this year. (Rene Johnston/Toronto Star) (Rene Johnston/Toronto Star via Getty Images) (Rene Johnston via Getty Images)

Homebuyers have until the fall before the Canadian housing market potentially begins to turn back in favour of sellers, according to a new economic forecast from Deloitte Canada.

“The good news on the housing front is that the end of the downturn is in sight. We expect the housing market to bottom in the third quarter of this year,” says the report, which was released on Tuesday.

“With expected rate cuts starting at the end of this year and throughout 2024, the housing market recovery will begin.”

Real estate was one of the first sectors to feel the impact of the Bank of Canada’s fast-paced interest rate hikes. Higher mortgage rates and home prices that remain out of reach for many has sidelined many buyers.

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It was a stark contrast to the era of ultra-low interest rates that fuelled a housing frenzy, where skyrocketing prices and bidding wars were the norm in most regions.

But the Bank of Canada “appears to be done lifting interest rates,” Deloitte says, as long as inflation continues to ease. The firm forecasts inflation falling to 3.5 per cent by the second quarter this year and declining further to the central bank's ideal two per cent target by the end of 2024.

“By the end of this year, as more impacts from the high-interest rate environment continue to show up in the economic growth and inflation data, we expect to see both the Federal Reserve and Bank of Canada move to cut interest rates, a process that will continue throughout 2024 as rates move back towards their neutral level,” the report says.

The firm figures the BoC’s neutral rate, where it’s no longer stimulating or restricting economic growth, is three per cent.

Beyond lower rates, Deloitte sees immigration-fuelled population gains “significantly”, boosting housing demand, and in turn, prices.

Canada still in for a recession

The Canadian economy has kicked off the year stronger than many economists expected, but Canada won’t escape a mild recession, the report says.

Deloitte sees real GDP contracting 2.4 per cent and 2.7 per cent on an annualized basis in the first and second quarters this year, respectively. It’s a slight improvement to its forecast last quarter.

While the strong job market and wage increases are helping Canadian households, Deloitte says elevated uncertainty, a downturn in the U.S. and a slowdown in consumer spending will ultimately drag on growth.

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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