As Canada approached election season in the first quarter of 2024, the government at federal, provincial, and municipal levels enacted several key policies aimed at tackling the persistent issues within the housing market, primarily driven by the housing crisis. These policies collectively sought to adjust market dynamics, influence housing affordability, and control speculative activities.  

In the initial installment of this series, we dissected all the policies introduced in Q1 across all levels of government. 

• Federal Initiatives: At the federal level, strategic measures such as the extension of the foreign buyer ban and adjustments to foreign student visa caps were implemented to moderate the demand-side pressures on the housing market. Significant financial commitments were also made to boost the supply side, including enhancements to housing infrastructure and support for rental housing construction, which aim to address the critical shortage of affordable housing options. 
   
• Provincial Efforts: Provinces like British Columbia focused on facilitating housing construction for middle-income earners and imposing taxes to curb speculative buying, aiming to stabilize the market and ensure more equitable access to housing. 
   
• Municipal Strategies: Locally, increased development costs and regulations were put in place to ensure that new developments contribute positively to the community's infrastructure needs, although these measures also risked increasing the overall cost of housing projects. 

The ripple effects of these policies have both intended and unintended consequences on market dynamics, reflecting the complex relationship between regulatory measures and market reactions. 

Market Response: Presale Market Dynamics  

The performance of the presale housing market in the first quarter of 2024 was generally subdued, though there were notable disparities across different regions. The overarching sentiment among prospective purchasers and developers was one of uncertainty, exacerbated by shifting policies, high property prices, rising building costs, and increased interest rates. Director of Advisory Garde MacDonald noted the uncertainty pervading the market due to frequent changes in policy and economic conditions. "With legislative goalposts shifting, there's a palpable lack of confidence which has dampened the start of the year," MacDonald shared. 

In terms of sales, presales at newly launched projects in the first quarter were significantly higher than in 2023—doubling last year's numbers—yet they fell short of the levels seen in 2022 by about two-thirds. Specifically, presale absorptions for newly launched projects recorded approximately 1,000 units from January through March 2024, compared to 500 in the same period in 2023, and a much higher 3,300 in 2022. These figures illustrate a market that is on a path to recovery, albeit at a pace slower than many had anticipated, largely due to a high-interest rate environment and diminished affordability for a large segment of buyers. 

A standout aspect of the presale market last quarter was the considerable range of options available to buyers, resulting from increased competition among developers. This competition is more pronounced as developers launch new projects and vie against existing ones still on the market. As a consequence, incentives for buyers have seen a notable increase, with developers more willing to negotiate in order to meet their financing thresholds and start construction.

“We’ve seen incentives now reaching up to 7% in some cases, compared to the typical 1 to 2% seen previously,” MacDonald highlighted. “Buyers with a long-term outlook – those who have an investment horizon beyond four years – are finding advantageous terms to secure deals in the presale market." 

Market Response: Resale Market Conditions 

The performance of the resale housing market in 2024’s first quarter reflected both incremental gains and ongoing challenges. Year-over-year comparisons show a modest improvement in market sentiment, with condominium sales rising about 8% higher than in Q1 2023. Additionally, most submarkets experienced positive price appreciation during this period, suggesting a gradual recovery in certain segments of the market. 

However, the resale market has not returned to the peak levels observed during the exceptionally robust years of 2021 and 2022. Specifically, sales activity in Q1 2024 was approximately 45% lower than what was recorded during the same quarters in 2021 and 2022. For a broader perspective, this year's Q1 activity was also about 20% below the 10-year average for the first quarters, indicating that the market is still in a state of recovery from recent highs and lows. 

MacDonald pointed out the resilience of pricing despite ongoing economic pressures. “Despite the ongoing economic pressures, including two full years since the first interest rate hike by the Bank of Canada and nearly a year with a significant 5.00% overnight rate, the HPI Benchmark price for condominiums in Greater Vancouver has shown remarkable stability. In fact, as of March, benchmark pricing reached a new high and surpassed the former peak recorded in May of 2022 for the first time. This is particularly impressive when considering that price was only attained amidst all-time high sales activity around that period.” 

Several factors have contributed to this price stability, including sustained long-term confidence in the local real estate market, a relatively favourable job market, and a willingness among banks to offer flexible mortgage repayment options. These elements collectively support the underlying strength of the resale market, despite the current challenges and uncertainties. 

Key Insights and Trends 

From the market's perspective, a significant highlight has been the adaptability of developers and homebuyers to the evolving market conditions. Increased competition and higher buyer incentives have become more commonplace as stakeholders navigate the new landscape shaped by government interventions. 

The first quarter of 2024 was a period of adjustment and cautious navigation through the complexities introduced by new government policies outlined in Part 1. While the policies aim to address long-standing issues in the housing market, their immediate effects introduce a mix of challenges and opportunities for buyers and developers alike.  

In a market requiring strategic navigation, understanding, and adapting to policy changes is key to capitalizing on opportunities. This dynamic relationship will likely continue to shape the Canadian housing market as developers and homebuyers adjust and respond to the evolving policy environment.