What's happening in Quebec's real estate market?

Top advisor projects rate hikes will have a different impact across real estate segments and housing types

What's happening in Quebec's real estate market?

The Bank of Canada is expected to follow in the footsteps of the Federal Reserve by announcing another supersized rate hike of 75 basis points in the coming week.

In the first six months of this year alone, it has raised its policy rate by 125 basis points in three steps, including what was at the time a world-leading decision to increase rates by 50 basis points in April. So far, the BoC has been unable to quell the broadening influence of inflation on the Canadian economy.

What has been affected more significantly is the housing market: according to statistics from the Canadian Real Estate Association (CREA), the average price of a Canadian home sold during May was $711,000, representing a decrease of $100,000 from the peak reached in February.

While activity in the Canadian housing market has rebounded spectacularly since March 2020, with selling prices and sales volumes posting records for most of the past two years, it has lost significant momentum in recent months as rising interest rates raise mortgage borrowing costs.

Of course, the story of Canadian real estate hasn’t played out quite the same across all provinces.

“What I can see is in Quebec, activity and prices in the housing market have increased a lot in the last two years,” says David Poliquin, a portfolio manager at BGY, Services financiers intégrés with iA Private Wealth in Quebec. “Maybe not as much as Toronto or Vancouver. But in Montreal, prices have gone up by a lot; in Quebec City, it’s been much lesser.”

David Poliquin was awarded as one of the Best Financial Advisors in Quebec. Learn more about the winners in 5-Star Advisors 2023 special report.

Beyond differences across cities, Poliquin expects various categories of real estate will exhibit slightly different reactions to interest rates. Even within the housing market, he anticipates variations in response depending on the type of housing, and even depending on the listing price of units.

In May, the average home sold price in Montreal’s housing market clocked in at roughly $607,000 – equivalent to an 11% year-on-year increase, but still a very slight dip from $608,000 in April. In Quebec City, the average home sold price in May was roughly $349,000, while the average sold price in the province was close to $494,000.

As housing market prices start to drop more quickly, Poliquin expects a fear of missed opportunity to set in among sellers. He cited a report by Desjardins, which predicted that as central banks increase rates and housing prices descend, it could trigger a wave of house owners putting their properties up for sale as they chase the quickly vanishing potential returns on their investments.

“We're not yet there. We don't see it yet,” he says. “But the market is still pretty hot, so there’s a chance we could see this kind of thing unfolding.”

While none of Poliquin’s clientele has been affected by events in Quebec’s housing markets, he shared how two clients looking to sell large apartment properties have been affected by the shifting environment of property prices and interest rates.

One person looking to sell a large apartment property had received a real offer from a buyer for $12 million, but he wasn’t sure because the transaction wouldn’t close until the end of the year, so he decided to turn it down. Today, he’s putting the same building up for sale at $10 million.

Another client, Poliquin shares, was trying to sell a large apartment building in February. She was looking at bids from 15 prospective buyers, but the auction fell through when all the 15 pulled out. The problem, he says, was that the interest rates at the time made it unattractive.

“At the time, cap rates were very low in Montreal for a big building in the multi-residential market,” he says. “But now at the current rates, things have changed.”