The stalemate continues between buyers and sellers in Toronto’s real estate market this month. It’s easy to get excited because sales are up from last year — but let’s remember that last year was an exceptionally bad year. In the broader view, the fall market has been relatively weak in the long-term context against the typical month of September.

Key September points

The Toronto Regional Real Estate Board (TRREB) posted its monthly Market Watch report, and here are the key points you need to know from the summary: 

1. Sales are up 8.5 per cent from last year.
2. New listings are up 10.5 per cent, slightly outpacing sales. 
3. Properties taking 35-45 per cent longer to sell compared to last September.
4. Because of slowed sales cycle, active listings are up 35.5 per cent! Supply accumulation is becoming substantial.
5. House prices are still grinding down — nominally, 1.0 per cent below last year, with real house prices down 3.0 per cent when adjusted for inflation.

Source: TRREB

Recovery or rebalancing? 

TRREB argues the uptick in sales we’re seeing is the result of favourable market conditions, such as interest rate cuts and revised mortgage lending guidelines. These factors are certainly important to recovery, but a deeper look suggests that the GTA market might be more balanced than on a path to full recovery.

It’s worth seeing a long-term “sideways” market, rather than an “upwards” one. The key factor here is the rate of growth in supply, which has outpaced demand, challenging the notion of a straightforward recovery. Until that changes meaningfully from buyers entering the market more quickly than sellers, it’s tough to imagine a complete recovery has begun.

Sales increase due to new opportunities for buyers, but price still most important factor

The 8.5 per cent year-over-year increase in home sales (4,996 in September 2024, up from 4,606 in September 2023) is presented as evidence of recovery. TRREB President Jennifer Pearce attributes this increase to buyers capitalizing on lower borrowing costs and adjustments to mortgage lending guidelines.

These changes include:

1. rate cuts from the Bank of Canada 
2. reduced five-year fixed mortgages from a falling Canadian five-year bond yield
3. the coming introduction of longer amortization periods
4. the ability to insure mortgages for homes valued up to $1.5 million 

These factors certainly make the market more affordable for some buyers who are limited by capital costs and the lending environment. However, with the B20 stress test still in place and buyers qualifying at rates over 5.0 per cent, price ultimately becomes the most important factor for many buyers looking to re-enter the market.

Easing of stress test could build staying power

To this end, TRREB highlights that the easing of the mortgage stress tests for existing homeowners on renewal could build some staying power into the market, by making homeowners and investors able to afford to keep their homes rather than selling when faced with financial stress.

TRREB also expects further rate cuts to allow a growing number of households to afford homeownership. This notion is especially pointed at first-time buyers, who have been outlined by the Bank of Canada as nearly 50 per cent of all homebuyers, representing a key demographic for those hoping for a recovery in the market. 

Supply outpacing demand

A closer analysis reveals a more nuanced picture. While demand (measured in sales) grew, the rate of new listings entering the market has grown even faster, by 10.5 year-over-year, slightly outpacing sales growth. In September, 18,089 new listings were added to the MLS, contributing to an already better-supplied market. This gap between supply and demand, rather than indicating a shortage of homes, points to an easing of market pressures and a better market for buyers to enter. 

Compounding this, we’re seeing a significantly increased “time to sell” — meaning it takes an extra week for a listing to sell, compared to the average 20 days on market from September last year. This slowing absorption has led supply to accumulate, with active listings now up 35.5 per cent compared to September 2023.

Ability to negotiate on price: Indicates a market no longer heavily favoured to sellers

Should this trend continue to hold, it’s reasonable to expect that buyers will resume their home search as they see more homes on the market and hope they can capitalize on the supply, shop around and negotiate with sellers. This is how the imbalance between supply and demand is further materialized, in a decline in prices.

The MLS Home Price Index Composite benchmark was down by 4.6 per cent year-over-year, and the average selling price in September dropped 1.0 per cent compared to the previous year.

TRREB attributes this to increased negotiating power for buyers, especially in the more affordable segments like condominiums and townhouses, which are favoured by first-time buyers. More activity in the lower ends of the market can skew the average down. Interestingly, 416 condominium sales are actually up year-over-year, despite the market being in a severe state of excess supply. The ability to negotiate on price is a clear indicator of a market that’s no longer tilted heavily in favour of sellers.

Source: TRREB

The pricing context: A “recovery” in question

A true market recovery, by definition, would generally see home prices stabilizing or even increasing as demand starts to outpace supply. However, this is not currently the case in the GTA.

While average selling prices have edged up slightly on a seasonally adjusted basis compared to August 2024, the year-over-year decline in benchmark prices suggests that the market has not fully recovered to its previous highs. Affordability challenges that plagued the market before the interest rate hikes are being alleviated, but they haven’t disappeared.

Furthermore, while rate cuts may improve affordability in the short term, they don’t necessarily address the long-term structural issues in the housing market, such as supply constraints or high construction costs. It’s worth noting that while lower borrowing costs can temporarily boost demand, they can also encourage speculative buying, which could further distort the market, particularly if supply doesn’t keep pace.

Recovering sales, but not prices

Despite TRREB’s optimistic messaging, the GTA housing market appears to be in a state of balance rather than recovery. Yes, sales are up, and rate cuts have eased some of the financial pressure on buyers and sellers. On the other hand, the growing supply of homes, coupled with modest price declines, suggests a more buyer-friendly market, one in which supply is catching up to — and in some cases, surpassing — demand.

This dynamic is providing more negotiating power to buyers, and while that’s a positive development for affordability, it doesn’t necessarily signal a robust recovery in price. Instead, the current market is best characterized as one where buyers have regained some control, but where underlying challenges around housing supply and affordability remain.

The return to a balanced market does point to a steady resurrection of sales activity, which is welcome news for the real estate profession that has been dealing with drastically reduced activity for some time now.  

There’s an interesting pattern emerging in Canadian real estate: ever since the Bank of Canada’s first rate cut, home sales have increased as buyers get improved affordability, though still well below the long-term average.

Price recovery is still yet to be found, and sales volume trended up again 1.3 per cent month-over-month in August, reaching its highest level since January 2020.

At the same time, new listing activity continues to accumulate with new listings climbing for the fourth straight month. Will this trend continue? The market will head into buyer’s market territory, where supply is outgrowing demand.

With that in mind, there are expectations that future rate cuts into 2025 well lead to cautious optimism among potential buyers and investors.

Newly listed properties in Edmonton and Calgary offset GTA decline 

Despite the uptick in sales, the market remains mostly stuck in a holding pattern as many buyers are waiting for improved affordability before making purchases.

The number of newly listed properties increased by 1.1 per cent month-over-month in August, with approximately 177,450 properties available for sale — up 18.8 per cent from the previous year, but still below historical averages.

But for the second month in a row, there was a boost in new supply in Calgary, with Edmonton also witnessing an uptick of listings. The rise of newly listed properties in Edmonton and Calgary offsets a decline in the GTA. 

Consistent, stable increase in sales-to-new-listings

The national sales-to-new listing ratio rose slightly to 53 per cent, matching our record in April. We’re a long way from returning to what was our highest average of sales-to-new listings which we achieved in December 2023: 81 per cent.

We have been relatively and consistently stable ever since our increase from January’s 46 per cent to February’s 52 per cent. So, it may be some news that we’ve matched our April 2024 average. 

Prices

After Canada experienced a record high price in 2022, the market recoiled down about as quickly as it jumped up. Since the bottom of the recoil, we’ve seen very little upward or downward momentum in price. 

Significant fluctuation in GTA condominiums

Toronto area condominium apartments are having a significant fluctuation, with a recoil off of an all-time high price and a few bounces since the blow-off top. 

Source: x.com/Tablesalt13/

It’s clear that the outlook doesn’t look good for 2025, as it seems it will touch the 350 margin — the record low from around 450 in January 2022.

I’m always reluctant to draw any conclusions about housing markets based on seasonally low data. More specifically, July-August and December-January typically have suppressed sales volume, so using them to guide decision-making can lead us astray.

Source: TRREB

With that being said, there are a few key things to be mindful of in Toronto Regional Real Estate Board (TRREB)’s most recent Market Watch release:

Home sales are down by 5.3 per cent compared to August last year. This is relatively in line with the declines we’ve seen each month in 2024. As well, homes are taking much longer to sell (40-57 per cent increase in days-on-market).

As a result, inventory continues to accumulate in the absence of absorption, so active listings are up significantly (46.2 per cent). Nominal prices are down slightly (0.8 per cent), so when adjusted for current inflation, real house prices are down over 3.0 per cent since last year.

The fourplex pump

Source: TRREB

When you unpack these data points a little further, you can get a better understanding of the market.

Some things stand out here:

1. Area code 416 detached home sales is the only category posting a YoY increase in number of units sold in August, up 8.3 per cent. It’s also the only category posting a YoY increase in price, up 3.2 per cent.

2. Area code 416 condominiums and townhouses have both seen double-digit drops in volume.

Presumably, the municipality’s upzoning of residential neighbourhoods in Toronto to four units has had some positive impact. A floor on area code 416 detached homes would be established by the last buyer in the market — an investor looking to tear down the home and rebuild a multiplex there. Their output value has now gone from one or two units to four units, as a purchaser can now build a fourplex on detached lots.

In the 905 area code, detached sales appear to be resilient, but less optimistic than in 416. The 905 area code’s detached sales number saw a 3.3 per cent decrease.

The cooling condominium market

Condominium units are a very different story from the detached market. We’ve been hearing alarming reports of condominium volume piling up, with product exceeding 12 months of inventory at some periods.

Condominium apartment sales continue to decline, currently at a rate of 11.4 per cent across the GTA compared to August of last year. This decline is reflected further in the preconstruction condominium sales market, where sales are 50 to 75 per cent below the long-term average.

Declining rents and increasing interest rates have created a difficult cash flow scenario for condominium investors. As a result, many are looking to offload assets, and very few are looking to purchase these assets.

Source: TRREB

Pricing

Prices are down across the board on TRREB. Notably, beyond condominiums, recipients of the pandemic’s urban exodus are seeing a steeper recoil from peak pricing, which seems to correlate heavily with the magnitude of price increases during the exodus.

Source: TRREB

Moving forward

With another 25 basis point rate cut from the Bank of Canada, some pressure has been eased for financial stress on certain sellers. Fixed rates are declining, so there’s a little more light at the end of the tunnel for those facing a steep mortgage payment increase upon renewal in 2025 and 2026.

The bigger question is when interest rate cuts will have a material impact on bringing purchasers back to the market. So far, the impact of 75 bps rate cuts has been relatively muted, as the weight of financial stress seems to outweigh the benefit of lower rates.

Despite gaining momentum in June, after the Bank of Canada’s rate cut that month, activity in Canada’s housing market paused in July.

Last month, home sales dipped 0.7 per cent on a month-over-month basis, reversing a small portion of June’s post-first rate cut gains. There’s a likelihood of further rate cuts in the next interest rate decision with the pace of future policy likely easing.

Expectations of further policy easing and more rate cuts to come

It’s clear that we may take a while to return to the COVID era when home sales peaked in January 2021 — their highest peak since January 2009, reaching approximately 64,000 sales. Despite the 0.7 per cent drop in sales, there’s a positive side to this as sales remain close to the recorded level from June.

But after the Bank of Canada announced a second rate cut of 4.5 per cent on July 24, there have been growing expectations of further policy easing with markets anticipating additional cuts as we head into fall.

It’s good news that despite the slight dip in July, our actual monthly activity was still 4.8 per cent higher than in July 2023. As well, the number of newly listed properties increased by 0.9 per cent month-over-month with Calgary seeing a notable boost in supply.

The Home Price Index rose by 0.2 per cent from June to July, although prices remained 3.9 per cent lower than in June 2023. The national average sale price was virtually unchanged — dipping just 0.2 per cent year-over-year to $1,667,317.

A balanced market with potential for continued downward price pressure — fall will be oversupplied

Canada’s market is pretty much balanced at this point, steadily at just over four months of inventory and just over 50 per cent sales-to-new-listing ratios. This can result in continued downward pressure on prices.

All of this is correlated to the fact that national new listings inventory continued to climb in July, which is typically considered one of the slowest periods for new listings. Looking ahead into fall, there will be an oversupplied market.

Alberta and Ontario: Stabilized

The biggest price increase was observed in Edmonton and Hamilton-Burlington, whereas Calgary and Toronto both witnessed the largest average price increase, which levelled one another out. This has resulted in Alberta and Ontario stabilizing in terms of the provincial average home sales price trend over the last several months.

Interestingly enough, despite having the biggest decrease in average price, Calgary had the most number of properties listed, which contributed to the increase of 0.9 per cent of the national average. 

Source: Wowa.ca

Keeping an eye on these developments will be critical for understanding what’s in store for the industry this fall and beyond, and for helping us advise our clients well.

In the Greater Toronto Area’s (GTA) housing market, July 2024 tells a story of resurgence and adjustment. A previously stagnant market is now starting to revive, with home sales increasing by 3.3 per cent, reaching 5,391 transactions compared to last July’s 5,220.

This renewed activity is highlighted by an 18.5 per cent rise in new listings from the previous year, providing prospective buyers with more options. However, the revival also reveals contrasting elements — as supply grows and choices expand, the average selling price sees a slight decline, reflecting the complex dynamics between supply, demand and market pressures.

Across these shifts, the condominium sector presents its own scenario, with rental demand rising but being outpaced by an influx of new listings, resulting in more choices and slightly lower rents for tenants.

Significantly more listings helped boost supply and drop prices

July 2024’s GTA home sales rebounded from a previous stagnation and suggest a gradually recovering market. This increase in sales was matched by a significant rise in new listings with 16,293 in July, representing an 18.5 per cent increase compared to the same time last year. 

Clearly, there is an improved market supply, which helps to keep up with demand as prospective buyers have a much larger array of choices available. 

Source: TRREB

Despite the rise in both sales and new listings last month, the GTA’s average selling price declined by 5.0 per cent year-over-year. Reported at $1,106,617, it marked a 0.9 per cent (over $10,000) decrease from the $1,116,950 recorded in July 2023. The reduction in prices can be attributed to the increased inventory which has helped decrease demand pressure on the housing market.

Source: TRREB

Condominium sales and rentals

With this in mind, the GTA’s condominium market had mixed results. Condominium rentals experienced a substantial increase in Q2 2024 with 17,400 rentals compared to 13,896 rentals in Q2 2023. This was a 25.2 per cent increase, but the number of new condominium rental listings rose even more significantly, up by 51.3 per cent year-over-year. 

Source: TRREB

Despite the higher demand for rental accommodations, tenants have benefited from increased choice and slightly lower average rents. On average, a one-bedroom condominium apartment in Q2 2024 rented for $2,452, reflecting a 3.1 per cent decline from the $2,529 average rent in Q2 2023. Similarly, the average rent for a two-bedroom condominium was down by 1.9 per cent to $3,178 from $3,239 in the previous year.

Although there was a substantial increase in condominium rentals, condominium sales dropped to 5,474 in Q2 2024 from 6,824 in Q2 2023, a 19.8 per cent decrease. In contrast, the number of new listings surged by 36.5 per cent year-over-year, reaching 16,917. The average selling price of condominium apartments in Q2 2024 was $729,005 a slight drop from $737,925 at the same time in 2023.

Source: TRREB

Toronto reported a 0.5 per cent decrease in its average selling price of $765,963, while Durham has one of the GTA’s lowest condominium sales and lowest average prices in Q2 2024.

As we look at the GTA’s housing market for mid-2024, the combination of rising transactions and falling prices reflects a market in transition. A 3.3 per cent increase in home sales alongside a 5.0 per cent decrease in average prices highlights the balance between growing supply and moderated demand.

In the condominium sector, we’re seeing a similar trend — a significant rise in rentals contrasting with declining sales and a notable increase in new listings. This evolving market presents both opportunities and challenges, indicating that while recovery is underway, the future will be complex and multifaceted. Our 2024 housing market is more than just numbers; it illustrates the dynamic interaction of economic forces, buyer sentiment, and strategic adjustments.

Canada’s housing market finds itself, as of June, poised for a comeback after a challenging year. The trigger? A strategic interest rate cut by the Bank of Canada, leading to a 3.7 per cent rise in national home sales compared to May. After months of declining activity, the market is showing signs of life, but the road ahead is filled with uncertainties and hardship for both industry professionals and buyers and sellers alike.

But will this interest rate cut be enough? Is it the start of a cutting cycle? Will it get worse before it gets better? We look into the story behind the numbers, examining how economic policy, consumer sentiment and regional differences are shaping the recovery of Canada’s real estate landscape.

Dialed back expectations around interest rate cuts — cuts that would draw in buyers

Since the last forecast in April, expectations surrounding interest rate cuts this year have been dialed back as the market has seen an influx of properties with many sellers listing their homes in the spring. However, buyer activity and consumer sentiment have remained low. 

It’s anticipated that gradually lowering interest rates will eventually draw buyers back into the market. Nonetheless, the sluggish spring market and increasing supply levels have led to a downward revision in sales and average home price projections.

26% more listings than last June but below historical average

In 2024, approximately 472,395 residential properties are expected to be sold, marking a 6.1 per cent increase from 2023, whereas the total average home price is projected to rise by 2.5 per cent to $694,393.

Looking ahead to 2025, home sales are forecasted to increase by 6.2 per cent to 501,902 units, supported by continued declines in interest rates and returning demand. The national average home price is anticipated to climb by 5 per cent to $729,319.

But what really happened is by the end of June, there were about 180,000 properties listed for sale, which is a 26 per cent improvement from the previous year but remains below the historical average of approximately 200,000 sales by this month.

Possible slowdown in inventory buildup, approaching balanced market conditions

The number of new listings increased modestly by 1.5 per cent month-over-month, while the MLS Home Price Index (HPI) edged up by 0.1 per cent from May 2024. Despite these slight gains, the HPI was down 3.4 per cent year-over-year, and the national average sale price decreased by 1.6 per cent compared to June 2023.

The end-of-June supply of properties was up by 26 per cent from the previous year but remained below the historical average, suggesting a possible slowdown in inventory buildup. The national sales-to-new listings ratio improved to 53.9 per cent in June from 52.8 per cent in May, approaching the long-term average of 55 per cent and indicative of balanced market conditions.

Housing prices fluctuating

Regionally, housing prices continue to fluctuate. Calgary, Edmonton, Saskatoon, Montreal and Quebec City’s prices have been on an upward trajectory since early last year, while Ontario and Nova Scotia have also seen recent price increases starting late last year.

However, the non-seasonally adjusted National Composite MLS HPI remains 3.4 per cent below June 2023 levels, reflecting the sharp price increases that occurred in the spring and early summer of 2023. The national average home price in June was $696,179, down 1.6 per cent from the same month the previous year.

Our takeaways: the story of Canada’s housing market in June 2024 is one of cautious optimism and evolving dynamics. The early signs of revival triggered by the Bank of Canada’s interest rate strategy have laid the groundwork for continued cuts and expected (hopeful) growth in the coming years.

With a projected 6.1 per cent increase in property sales this year and continued growth into 2025, there’s a sense of nervous anticipation as buyers’ and sellers’ expectations have more ground to cover. However, the story is far from over.

The market’s future depends on overcoming challenges like rebuilding buyer confidence and managing the complex relationship of supply and demand. Looking ahead, the ongoing story of Canada’s housing market promises a mix of resilience, adaptation and hopeful progression.

Home sales in the GTA dropped in June compared to the same month last year. Despite the Bank of Canada’s interest rate cut at the beginning of June, many potential buyers remained hesitant to enter the market. This resulted in a high supply that created a slight dip in the average selling price compared to the prior year. 

Source: TRREB

Fewer sales from a year ago but with over 12% more new listings

There were 6,213 home sales in June 2024, representing a 16.4 per cent decrease from the 7,429 sales recorded in June 2023. However, new listings increased by 12.3 per cent year-over-year, reaching 17,964. 

Source: TRREB

The average selling price in June 2024 was $1,162,167, down 1.6 per cent from $1,181,002 in June 2023. The MLS Home Price Index Composite benchmark decreased by 4.6 per cent compared to the previous year.

First half of 2024 performed better than all of 2023

Annual sales were $1,126,279 last year. After six months into 2024, we’re currently at an average of $1,130,744 which is slightly better than all of 2023. Sales have been steadily increasing since their fall in December 2023 which helped us achieve a slightly higher sales average. The current 6,213 June sales compared to December 2023’s 3,420 demonstrates the changing economy.

Source: TRREB

While the recent rate cut provided some relief, most homebuyers are likely waiting for multiple rate reductions before re-entering the market. This proves that the current well-supplied market has given recent home buyers more choice and negotiating power on prices. As sales increase alongside lower borrowing costs, the elevated inventory levels will help prevent a rapid increase in selling prices. 

As the market adjusts to changing economic conditions, any first-time buyers and sellers in the GTA will be closely watching for further interest rate cuts and their impact on housing affordability and the ever-changing consumer market.

National home sales in Canada edged down 0.6 per cent month-over-month last month, with actual monthly activity coming in 5.9 per cent below May 2023 levels.

On the other hand, sales activity remained below the 10-year average, as the number of newly listed properties increased by 0.5 per cent month-over-month in May.

More homes for sale across Canada thanks to new listings and slow sales

More new listings amid slower sales have led to an increasing number of homes for sale across most Canadian markets. About 175,000 properties were listed for sale nationally at the end of May 2024, representing a 28.4 per cent increase from a year earlier, but remaining below historical averages. There were 4.4 months of inventory nationally, up from 4.2 months in April, the highest level for this measure since the fall of 2019.

The MLS Home Price Index dipped 0.2 per cent month-over-month in May. The non-seasonally adjusted national average sale price was down 4.0 per cent year-over-year at $699,117.

Largely flat prices with a few anomalies

Home prices are largely flat across most markets, except for steady increases in Calgary, Edmonton and Saskatoon.

The national sales-to-new listings ratio eased to 52.8 per cent, still within the 45-65 per cent range for balanced market conditions. The non-seasonally adjusted national average sale price was down 4.0 per cent year-over-year.

Lower interest rates & the psychological effect on homebuyers

The Bank of Canada’s recent 25 basis point rate cut is expected to have a significant psychological effect on potential homebuyers who have been sitting on the sidelines, bringing pent-up demand back into the market.

However, the pace and extent of further rate cuts will determine the impact on the housing market.

Canadian housing activity saw another quiet month in May, with sales edging slightly lower and new listings moving only a little higher. We’ll see what happens in the coming months, when the Bank of Canada’s rate cut is expected to create a revival.

The Greater Toronto Area (GTA) housing market experienced a period of stability on a month-over-month basis in May, with home sales remaining at a low 7,013 transactions, the Toronto Regional Real Estate Board (TRREB) reports.

That being said, “stability” is not really what you want on a monthly basis in the middle of what ought to be a spring market. In a typical year, transactions rise pretty consistently from January until May. When looking at an annualized context, it’s a significant 21.7 per cent decline from the 8,960 sales in May 2023, so it’s no surprise that Ontario Real Estate Association (OREA) CEO, Tim Hudak, has publicly called for rate cuts.

Unaffordable markets see very little transaction volume — a problem for the industry

Hudak’s comments bring attention to something that is painfully apparent in advanced economies with lower homeownership than Canada: unaffordable markets see very little transaction volume.

While this is not necessarily a bad thing for consumers of housing, it’s certainly a bad thing for an industry that depends on transaction volume to make a living. This is why countries like Canada and the United States have large numbers of realtors per capita, whereas countries like Switzerland and the United Kingdom have very little.

Much of the transaction volume that professionals do see in these markets is in leasing, which has become a growing share of income for real estate professionals in the GTA during this record-low period of sales volume.

It has not been hard to find acknowledgment of Canada’s crippling housing affordability issue from economists at Canada’s biggest banks, for example, with RBC’s analysis:

People will start buying houses when they can afford to

From my perspective, in order to see meaningful growth in transaction volume, we need housing to be affordable again. It’s so simple that people call me stupid when I say it, yet it appears to be so easily ignored.

Bloomberg broke down what it would take for Canada to see a retreat from this affordability crisis:

1. A 33 per cent decrease in house prices, and/or
2. A 55 per cent increase in incomes, and/or
3. A 350 basis point decrease in mortgage rates

The average selling price for homes in the GTA in May was $1,165,691, marking a 2.5 per cent decrease from May 2023’s average price of $1,195,409. Similarly, the MLS Home Price Index composite benchmark saw a year-over-year decline of 3.5 per cent.

Despite prevailing high interest rates, there was a modest month-over-month uptick in the average selling price on a seasonally adjusted basis from April 2024, indicating slight strength in the bid of buyers in today’s spring market. 

“Inflation could be higher … if house prices in Canada rise faster than expected, or if wage growth remains high relative to productivity”

With this updated annual decrease in house prices, we have arrived at a juncture where prices continue to do the bulk of the work in restoring affordability. Measured from the peak of the market, house prices are down 20-30 per cent, depending on which metric and market you use. 

Mortgage rates have only just begun to move down 25 basis points this week, and incomes have risen a nominal 2.5 per cent since 2022. Without further material changes in incomes or interest rates, it would not be unreasonable to expect house prices to continue bearing the burden of increased affordability, as fewer and fewer Canadians can afford to buy homes.

The Bank of Canada acknowledged this in their press conference opening statement for the June rate cut — by stating that “Inflation could be higher … if house prices in Canada rise faster than expected, or if wage growth remains high relative to productivity.”

As such, the Bank of Canada is a little bit stuck here when it comes to restoring housing affordability, as that growth in wages or house prices would decrease their likelihood of further cuts. 

Reasonable to expect a buyer’s market this summer

Despite the annualized decrease in demand. new listings showed a contrasting trend, increasing by 21.1 per cent year-over-year to reach 18,612. The combination of the increased supply (listings) and decreased demand (sales) is sending us on an expedited path toward a buyer’s market, which is typically coupled with downward price discovery.

This influx of new listings provided prospective buyers with a larger range of choices and greater negotiating power, leading to a less competitive market environment compared to the previous year. The supply/demand imbalance led to a relatively low sales-to-new-listings ratio. Given supply growth alongside a typical summer decline in buying activity, it would be reasonable to expect a buyer’s market this summer. 

While many are optimistic that interest rate cuts will be the beginning of the end for unaffordability and low-volume challenges in Canada’s real estate market, this reality comes at a cost. Much of the listing volume increase we see after rate cuts take place could come as a result of financial stress on borrowers, despite their slight relief. 

Mortgage rate delinquencies rise after rate cuts

There are two reasons why mortgage delinquency rates typically rise after rate cuts take place: 

1. The lagging impact of rate hikes being felt on borrowers
2. The reality that central banks cut rates in response to bad economic data, which leads to more bad data such as rising unemployment, which constricts household ability to service debt

This was well visualized by Ben Rabidoux of Edge Realty Analytics: 

Caution, dangerous curves ahead

Currently, the housing market is characterized by cautious behavior among buyers, largely driven by high mortgage rates. According to Ipsos’ recent polling, a significant number of prospective homebuyers are holding off until they see concrete evidence of mortgage rates dropping. Even the Bank of Canada’s rate cuts may not accomplish that goal, given that the Canada five-year bond yield, the primary pricing mechanism for five-year fixed mortgage rates, just went up in response to June 7 data from the U.S.

It’s expected that as borrowing costs decrease over the next 18 months, a substantial number of buyers, including many first-time buyers, will be drawn into the market. This surge in demand is expected to ease some strain on the tight rental market, as these new homeowners transition from rental properties.

Jason Mercer, TRREB’s chief market analyst, pointed out that although high interest rates have tempered home prices, affordability will likely improve as borrowing costs decrease. However, this improvement may be short-lived as increasing demand is expected to exert upward pressure on home prices again.

Source: TRREB

The Canadian housing market experienced a slight dip in sales activity in April compared to March despite a rise in the number of properties available for sale, which would typically signal the onset of the spring market.

National home sales have declined by 1.7 per cent since March. However, this decrease was compounded by a 2.8 per cent rise in newly listed properties, resulting in a 6.5 per cent jump in the overall number of properties available for sale, reaching its highest level since the onset of the COVID-19 pandemic.

Trends over time

A noticeable trend is the peak in sales activity around 2020 Q3 through 2021 Q3, where sales consistently topped 600,000 units, peaking close to 800,000 units in some quarters. This surge could be attributed to a variety of factors such as low interest rates, a response to the COVID-19 pandemic where people sought better living arrangements and a temporary rush to capitalize on favorable market conditions. Post-2021 Q3, there’s a clear downward trend, with sales gradually declining to below 400,000 units by April 2024.

Unlike sales, listings show a less volatile pattern. The peak of new listings closely aligns with peak sales periods, suggesting that the initial surge in sales was supported by a substantial number of listings, providing enough supply to meet the high demand.

Post-2021, though sales decline sharply, new listings show a gradual decline but are consistently above 500,000 units, indicating that while fewer transactions are occurring, the market still has a relatively healthy supply of properties.

The correlation between sales and listings is strong, especially during the peak periods. High sales volumes were matched by high listing volumes, which suggests that the market was both active and balanced in terms of supply and demand. As sales begin to decline, listings also decrease but at a slower rate, which could indicate an oversupply in the market or less urgency to sell, contributing to the cooling of the market.

Market conditions

The increase in actual transactions may partly reflect the timing of the Easter long weekend, and with sales down and new listings up in April, the national sales-to-new listings ratio eased to 53.4 per cent — slightly below the long-term average of 55 per cent. This is generally a good thing as a ratio between 45 per cent and 65 per cent is balanced, with readings above and below this range indicating seller’s and buyer’s markets, respectively. 

The months of inventory, another important metric, stood at 4.2 months on a national basis at the end of April, up from 3.9 months in March and the highest level since the pandemic began. This increase in inventory, coupled with the balanced sales-to-new listings ratio, indicates a shift towards more balanced market conditions after a prolonged period of tight supply and strong demand.

Regional variations

While the national picture shows a balanced market, there are notable regional variations. Calgary, Edmonton and Saskatoon continue to experience steady price growth, with prices in these markets ticking higher since the beginning of 2023. In contrast, prices are generally sliding sideways across most other regions of the country.

The Lower Mainland of British Columbia, which includes Greater Vancouver and the Fraser Valley, saw slight month-over-month price declines in April, ranging from -0.2 per cent to -0.5 per cent. However, year-over-year price changes in these areas remain positive, with Greater Vancouver up 2.7 per cent and the Fraser Valley up 1.9 per cent.

Ontario’s housing markets also exhibited mixed performance. The Greater Toronto Area (GTA) saw a 0.4 per cent month-over-month price increase, while other regions like Kitchener-Waterloo (1.0 per cent), Hamilton-Burlington (1.2 per cent), and Ottawa (0.0 per cent) experienced modest gains or remained flat. Conversely, areas like Sudbury (5.9 per cent) and Bancroft (-3.4 per cent) saw more significant price movements.

In Quebec, the Montreal CMA experienced a 0.8 per cent month-over-month price decline, while the Quebec CMA saw a 1.2 per cent increase. The Maritimes, including New Brunswick, Nova Scotia and Prince Edward Island, generally saw modest price gains or remained stable in April.

The actual (not seasonally adjusted) national average home price was $703,446 in April 2024, down 1.8 per cent from April 2023. This year-over-year decrease in the national average price is likely influenced by the cooling market conditions and increased inventory levels.

Oversupplied, slower spring market with more buyer choice and bargaining power

According to CREA’s senior economist, Shaun Cathcart, the spring market of 2024 is characterized by a healthier number of properties for buyers to choose from, but with less enthusiasm on the demand side compared to the previous year. Most real estate professionals would agree with this — we’re in a market that’s oversupplied compared to the past few spring markets we’ve seen and, as a result, there’s very little urgency among buyers, who are enjoying the rare opportunity to shop around. 

James Mabey, chair of CREA’s 2024-2025 board of directors, noted that the increase in listings is resulting in the most balanced market conditions seen at the national level since before the pandemic.

Despite high mortgage rates making it challenging for some buyers to enter the market, those who can afford to purchase a home are enjoying more choice and increased bargaining power. However, as Mabey points out, the current balance in the market might be short-lived given the underlying demand.

Personally, I see the Canadian housing market transitioning towards a more balanced state, with a noticeable increase in inventory and a moderation in price growth. However, regional variations persist, indicating that while some areas are stabilizing, others may still experience fluctuations.

As we move further into the spring and summer buying seasons, it’s clear that the market dynamics will continue to evolve, so both buyers and sellers should be keeping a close eye on the current trend.