Is Canadian Real Estate Changing Course?
The housing market in Canada has been intensely debated, poked and prodded in the last couple of years, and especially so in 2024.
Concerns over a potential housing bubble and affordability challenges for first-time homebuyers are front and ahead in the minds of investors and other stakeholders.
However, the latest data trickling in from the Canadian Real Estate Association (CREA), as well as reports of housing starts from Canada Mortgage and Housing Corporation suggest that the market may be undergoing a shift in direction.
Let’s decode CREA’s latest reports and explore the factors that may alter the Canadian housing market. From interest rate changes and inventory levels to economic conditions and regional variations, we’ll help you understand what dynamics are shaping the real estate markets in the country.
Table of Content
A Look at National Home Sales Trends
CREA’s latest statistics (July 2024) reveal a nuanced picture.
While national home sales were down by 0.7% on a month-over-month basis, the actual (not seasonally adjusted) activity was still 4.8% above July 2023 levels. The slight dip in sales is being chalked up to anticipation of further interest rate cuts by the Bank of Canada. The national average home price was $667,317 in July 2024, with a negligible change from last year.
In the same period, home sales in the Greater Toronto Area rose 3.3% compared to July 2023 while new listings increased by 18.5% year-over-year. The average selling price was down to $1,106,617, giving buyers more options at slightly lower prices.
Surprisingly, the Edmonton real estate market soared high, with July sales up 27% compared to the previous year. The better-than-expected city’s performance owes much to factors such as migration, healthy inventory levels, and affordability.
Remember that the central bank has already made two rate reductions in 2024, bringing the key interest rate down to 4.5%. It is widely expected that there will be further cuts in the days to come, albeit in small steps.
A senior CREA economist mentioned that markets expect rate cuts at every remaining Bank of Canada decision this year. In their opinion, with the anticipated policy easing along with the record-breaking demand, the forecast for Canadian housing activity going into 2025 has shifted from a layup to a slam dunk. In other words, very confident of a turnaround.
Shift in Inventory Levels
As of the beginning of August 2024, there were 183,450 properties listed for sale on Canadian MLS® Systems. This is a 22.7% increase from last year, though it is still below the historical average of more than 200,000 for this time of the year.
The increase in new listings, when taken along with the slight dip in sales, saw the national sales-to-new listings ratio receding to 52.7% in July, indicating balanced housing market conditions.
In some cities such as Edmonton, it is a different scenario – the tightening of inventory has pushed the market towards a sellers’ market. However, as long as Edmonton holds on to its “affordable city” tag, industry veterans see no cause for concern about a volatile housing market.
Regional Variations in Prices
CREA’s data showed that the National Composite MLS® Home Price Index (HPI) edged up 0.2% from June to July 2024. Though a small increase, it suggests a potential upward shift in prices.
Across the country, a growing number of local markets have witnessed an increase in prices. However, British Columbia and Ontario markets saw reduced activity, which held back the national price growth.
In Edmonton, the composite benchmark housing price topped $400,000 in June 2024, a level not seen since the spring of 2022. Meanwhile, prices in other major Canadian markets, such as Calgary, approached the $600,000 mark.
It is worth noting that the Bank of Canada’s interest rate cuts have had a mixed impact. While there was some renewed momentum in the market when the first cut was announced, the housing data has not shown tangible changes after the second cut in July 2024.
As the market adjusts to the lower borrowing costs, the full effects of the interest rate changes are yet to be seen. However, the CREA and other industry stalwarts remain cautiously optimistic.
Housing Starts Show an Upswing
In some good news, there was a positive momentum in housing starts in July 2024.
CHMC reports that housing rose by 3.2%, from 247,840 units in June to 255,783 units. This trend is based on a 6-month moving average of the seasonally adjusted annual rate (SAAR) of total housing starts across the country. Notably, total SAAR housing starts in urban centers with populations of 10,000 or more increased by 17%, reaching 261,134 units.
However, there are regional variations, with Montréal showing a 47% jump in SAAR housing starts. In contrast, Vancouver’s starts were down 18% year-over-year. Toronto’s year-to-date housing starts were also down by 9.5% compared to the same period in 2023.
What Does the Future Hold?
As always, predicting the future is a combination of several factors. As we see it, these influencing factors hold the key to any course changes in real estate.
Interest Rates
It goes without saying that the direction of interest rate changes will be a crucial determinant for the future. Further rate cuts can stimulate buyer demand, while hikes will dampen the market.
Inventory Levels
A higher-than-expected increase in new listings could tip the scales toward a more balanced or even buyer-favoured market. This will provide more choices for investors and homebuyers, while sellers may feel the pinch.
Economic Conditions
A downward dip in inflation, a strong job market and consumer confidence will support buyer demand. On the other hand, an economic slowdown could lead to a decline in housing activity.
Regional Variations
Though the GTA and Metro Vancouver continue to rule the roost, the overall country trends show a different picture. As seen in the case of Edmonton, regional differences in affordability, migration patterns, and local economic factors will result in divergent market trends.
The Bottom Line
While the national housing market may be experiencing a period of slower growth and stabilization, a full-blown crash seems highly unlikely. This will be a welcome change for first-time homebuyers who have faced astronomical high prices in recent years and have quietly shelved their plans
As always, the decision to buy a home depends on individual circumstances and financial status. If you are doing okay with your finances and are willing to take on potentially higher interest rates, it makes sense to buy now, especially in a more balanced market.
On the other hand, if you are still shaky or have flexible timelines, you can wait for a more buyer-friendly market with potentially lower prices.
Whatever you decide or even if you wish to decide, contact us for expert advice. Trust us, we have your best interests at heart and would love to hold your hand as you take a dip in the real estate pool.
FAQs
Is the Canadian housing market headed for a crash?
Based on the latest data and industry insights, a full-blown housing market crash seems unlikely. Instead, the market may experience slower growth and stabilization.
How are interest rate changes impacting the Canadian real estate market?
The Bank of Canada’s recent interest rate cuts have had a mixed impact so far. The full effects of the lower borrowing costs are yet to be seen and maybe apparent only by the end of this year.
Which regions are outperforming the national trend?
Edmonton stands out with home sales continuing to surge and outpacing the national trend. It is assumed that affordability, migration, and healthy inventory levels have contributed to the city’s resilient housing market.
What factors will shape the future direction of the Canadian housing market?
Key factors that are likely to influence the market’s trajectory include interest rate changes, inventory levels, economic conditions, and regional variations. The CREA remains cautiously optimistic about housing activity in 2025, but much will depend on how these factors evolve.
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