Real Estate Markets in 2024: Heading Towards Stabilization or Imminent Crisis?

As of early September 2024, the North American real estate market is sending mixed signals, leading to cautious optimism. While some indicators show signs of stabilization after a period marked by economic uncertainties, the future remains uncertain, and experts are divided on the outlook.

Canada: A Real Estate Market Recovery?

The Decline in Mortgage Rates

Since the summer of 2024, Canada has seen a moderate decline in mortgage rates, particularly for 5-year fixed-rate loans, which have dropped to around 4.29%. This decrease, driven by lower bond yields, could potentially reignite activity in the real estate market. However, this decline in rates should not overshadow other significant challenges the market faces, such as persistent inflation, a labor shortage in the construction sector, and a continued housing supply shortage to meet the growing demand due to immigration​​.

Impact on Buyers and Investors

The reduction in financing costs could improve consumers’ purchasing power, potentially encouraging more property purchases. Similarly, investors, attracted by more favorable financing conditions, might return to the market, particularly in major cities. However, this optimism is tempered by ongoing concerns about high household debt levels and the possibility of new economic difficulties. Not all sectors of the market may benefit equally, and the overall impact remains uncertain​​.

Outlook for the Coming Months

Despite some recovery prospects, the Canadian real estate market continues to face significant challenges. Persistent inflation, a labor shortage in the construction sector, and investor sentiment volatility remain major risks. While some economists anticipate a reduction in the Bank of Canada’s key interest rate to around 4.00% by the end of the year, the effects of this cut may not be immediately felt. Several experts believe that real market stabilization may not occur until 2025, when the combined effects of rate cuts and the gradual resolution of supply constraints start to take hold​​.

United States: Positive Signs and Challenges Ahead

Stabilization of Interest Rates

In the United States, 30-year fixed mortgage rates remain around 7%, but signs of stabilization are evident. Experts predict that rates could slightly decline towards the end of 2024, with forecasts suggesting a drop to around 6.3%. This decrease could provide some relief to buyers, although home prices remain high, with a 6.1% annual increase expected by the end of the year. However, this scenario is not guaranteed. The market’s reaction to these rates, especially in light of the potential for an economic recession, could lead to continued volatility.

Recession Rumors

Rumors of an imminent economic crisis are based on worrying economic indicators. Financial market volatility, fueled by disappointing economic data, has heightened fears of a recession. While bond yields have fallen, leading to lower fixed mortgage rates, the underlying dynamics remain fragile. If economic conditions worsen, the real estate market could face significant challenges​​.

Comparison with Canada

Unlike in Canada, where mortgages are often renewed every five years, American borrowers generally benefit from long-term fixed rates. This provides some protection against rising rates but also limits the flexibility of the U.S. real estate market. Some experts suggest that the Canadian market might adjust more quickly to changing economic conditions than its American counterpart. However, this remains speculative, and both markets face considerable uncertainties​​.