Forecasts for the Quebec real estate market in 2024

As 2023 comes to an end, many questions are being asked about the real estate market horizon for 2024.

So, what's next? What are our predictions for the real estate market next year? Let’s dive in.

Review of the Quebec real estate market in 2023

When we made our forecasts for 2023, we expected the market to recover slowly in a post-pandemic period. This has proven to be the case, as 2023 has not always been a good year for the residential real estate market.

Rising interest rates

The rise in interest rates was particularly significant in 2023. In particular, it was driven by the same increase in the Bank of Canada's benchmark interest rate, also known as the overnight rate target. It is this indicator that specifically dictates the others offered by the country's financial institutions to borrowers. If it goes up, so does the mortgage rate and vice versa.

In recent months, this rate has risen steadily and is now at a high level compared to previous years:

• 0.25% in March 2022;
• 2.5% in July 2022; 
• 5% since July 2023.

Construction on the decline

According to data published by the Canada Mortgage and Housing Corporation (CMHC) in October 2023, residential construction was down sharply this year. In particular, construction in the Montreal Metropolitan Area (CMA) was down 58% in the first 6 months of the year, with only 5,927 housing starts.

Rising prices

In terms of housing affordability, prices have remained at high levels in 2023. In a recent study, real estate agency Royal LePage reported an 8% year-end price increase in the fourth trimester of 2023 compared to the same period in 2022.

How will real estate perform in 2024?

Having taken stock of the past year, the question logically arises as to how the sector will evolve in 2024. Several issues are at the heart of the concerns of experts and citizens, such as:

• Interest rates;
• Mortgage renewals;
• Building construction;
• Number of transactions;
• Real estate prices.

What we already know

Certain trends have already been confirmed for the coming year. This is the case for the following two facts.

Mortgage renewals will be more expensive

This is one of the consequences of rising interest rates. Many homeowners will need to renew their mortgages in 2024. This means higher monthly payments in the coming months. These future trends were revealed in the Canada Mortgage and Housing Corporation's (CMHC) latest report on the mortgage sector.

Specifically, Canadian homeowners will have to pay an additional $15 billion when their mortgages come up for renewal. With nearly 45% of mortgages up for renewal between 2024 and 2025, this represents a significant increase in mortgage debt in Canada and Quebec. 

Higher taxes for homeowners

When Montreal's 2024 budget was announced, we recently learned of the tax increases expected for the city's homeowners. Residential property owners will see an increase of 4.9%, while non-residential property owners will see an increase of 4.6%.

Montrealers aren't the only ones facing municipal tax increases in the province. Some municipalities have announced much larger increases. These include:

• Saint-Jérôme (+5.2%);
• Lévis (+7.7%);
• Saint-Jean-sur-Richelieu (+7.75%).

Quebec City, however, limited its increase to 3.9%.

Our predictions for 2024

Here's a look at what's in store for the Quebec real estate market next year.

Longer loan terms

In 2024, amortization periods for new mortgages will continue to lengthen. Borrowers are looking to lower their mortgage payments by extending the term of their loan.

This forecast is indeed realistic if we look at the trend over the past 3 years. In 2020, 1 in 2 mortgages was for more than 25 years. By the first half of 2023, the share of loans of 25 years or more had risen to 2/3.

There is also a causal link with the many variable rate loans approaching or even exceeding their trigger rates. This has the effect of lengthening the amortization period, as the monthly payment is no longer sufficient to pay the accruing interest.

Fewer insured loans

The share of uninsured loans was only 45% of loans in 2016. By the second quarter of 2023, this figure had risen to 73%. In practice, the requirements for obtaining mortgage insurance have tightened, meaning that borrowers are taking on more risk to access homeownership.

Lower interest rates

Many experts predict that interest rates will fall in 2024. This is particularly true of Statistics Canada, which predicts a future decline in mortgage rates as part of its GDP release.

In a study published earlier in 2023, the Association des professionnels de la construction et de l'habitation du Québec (APCHQ) made similar predictions. It predicted a slight decline in five-year fixed mortgage rates in early 2024. The APCHQ identified 2 key factors to ensure the sustainability of these declines:

• Better anticipation of inflationary trends over time;
• A reduction in the federal funds rate.

Decline in transactions

For the housing market, the City of Montreal anticipates a future decrease in revenue from transfer taxes of $19.6 million by 2024. These are fees paid by a buyer as part of a transaction. Simply put, the city expects fewer transactions.

In Quebec as a whole, it is difficult to say at this stage what the general trend will be. However, the latest figures published by the Quebec government indicate that sales in the province were down 7.1% year-over-year in October 2023.

With construction levels down this year, we can expect transactions to pick up over a comparable one-year period. But does that mean the market will start to rise again? Nothing is less certain.

Will prices fall?

What are the experts saying about home prices in 2024? Let us take a look at a recent study by the Royal LePage agency. In this context, this player in the field of residential real estate does not foresee any major movement in acquisition costs. At the beginning of this year, figures suggested that house prices across Canada would rise by 7.9% by 2024.

A recent study by TD Bank, on the other hand, predicts a 10% decline in home prices across Canada. However, this has to be qualified as the decline is mainly concentrated in Ontario and British Columbia.

When will house prices fall?

For the time being, it's difficult to anticipate a significant drop in housing prices in Quebec. If there is any good news, certain factors, such as an upturn in construction, could make this trend favourable. This, in turn, would relieve demand in favour of increased supply, which would also help lower prices. However, this is not on the agenda at the moment.

Construction will pick up but will remain insufficient

This persistently high demand is, it must be said, influenced by the lack of supply itself, due to the low level of construction in the residential sector. In this respect, the decline in transactions expected by the City of Montreal in its 2024 budget suggests that the number of new homes built will not increase spectacularly in the coming months.

Nevertheless, in its 2023 study, the APCHQ expects 46,000 new housing starts in the province of Quebec in 2024. This would represent an increase of 15% over 2023. However, this pace of new construction is still considered insufficient by many experts.

This suggests that demand will continue to outstrip supply in major cities. At the same time, we can expect more of these new homes to be built in the province's smaller communities, where land prices remain more affordable.

What about inflation?

According to the Quebec Ministry of Finance, inflation could increase by 2.71% in 2024. While this growth is expected to be slower than in 2023, don't be fooled. It means that the cost of living will continue to rise, which is obviously a blow to households.

Looking to buy or sell a home in 2024?

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