Canada’s major housing markets are starting to recover, but one economist says a more pronounced recovery cannot be sustained until interest rates move significantly lower. 

Robert Hogue, assistant chief economist at RBC, said in a report Tuesday that as sellers have begun re-entering Canada’s major housing markets this spring, affordability conditions are still weighing on buyers. He said figures from local real estate boards in April highlight sharp increases in new listings and inventory across Vancouver, Toronto and Montreal. 

“This could reflect a confluence of sellers that include many who took a pass at the fall market (when demand and prices dipped) in the hope of better outcomes this spring. Some of the sellers could be in distress in the face of high interest rates,” the report said. 

Hogue also pointed to lower home resale figures in March and April in most major markets as buyers are not moving to capitalize on increases in supply. 

“High rates and poor affordability clearly continue to weigh heavily on buyers. We expect such pressure to persist until several rate cuts have been implemented,” he said. 

Despite sellers entering the market home prices “picked up slightly” across Canada’s major markets, the report said. In Toronto, Hogue said the MLS Home Price Index “rose sequentially” for a third consecutive month “albeit at a moderating rate.” 

“We think a vigorous, sustained recovery won’t take shape until interest rates fall meaningfully—something we peg for the second half of 2024,” he said. 

In March, Hogue said buyers and sellers were likely to face a “standoff” over the next few months as new listings were poised to meet constrained buyers. 

Going forward he predicts the Bank of Canada to start lowering rates in June, followed by 100 basis points of cuts over the second half of the year and another 100 basis points of cuts into 2025. 

In April, Hogue said prospective buyers were facing peak unaffordable market conditions amid high interest rates and home prices. He said in a report that Canadians were facing the “toughest time ever to afford a home.” 

“We estimate they’ve (high interest rates) shrunk the maximum budget for a household with a median income ($85,400 at the end of 2023) by 22 per cent since the first quarter of 2022 to just under $500,000,” Hogue said adding that those figures assume a 20 per cent down payment and a 25-year amortization.