The Canadian housing market got even quieter in September, as the adjustment to higher interest rates continues to work slowly through the system.

National home sales fell 3.9% in September (seasonally adjusted), or 32.2% from a year ago. That leaves activity volume below the low-end of pre-COVID norms, or very, very quiet. In the past 20 years, there were only two Septembers with weaker raw sales volumes—the 2010 recession and shortly after in 2012. Regionally, the vast majority of local markets saw sales fall month-to-month, and only one of 26 tracked on CREA’s leaderboard was up from a year ago. Guesses? Regina. Not surprisingly, the deepest declines have been in Southern Ontario, including the GTA, and around Vancouver.

New listings, however, are still very well-behaved. They dipped 0.8% in the month and are little changed from a year ago. In fact, while sales have swung wildly, listing flows have held very steady through the recent turbulence and are now very much in-line with pre-COVID norms. We also see plenty of listings getting pulled, rather than sitting on the market adding to inventory. So, while the market balance is soft, there is no forced selling or dumping of properties. The sales-to-new listings ratio weakened to 52% in September, and the months’ supply of homes for sale rose to 3.7, which hardly spells desperation. These national numbers do mask some much sharper regional deterioration, with Southern Ontario and Vancouver again looking most challenged.

With all that in mind, there's still a standoff in the market. Buyers can’t qualify for, or afford, early-year prices, and probably don’t want to catch falling knives anyway (how quickly the sentiment turned). But, sellers are able to hold out for better market conditions or, in the case of investors, put units on the rental market. In other words, the market is just not clearing right now—hence the lack of transaction volumes.

This is all making downward price discovery a slow but ongoing process. The average price fell 6.6% y/y, while the MLS HPI slowed sharply to +3.3% y/y. The latter is now down seven months in a row, or roughly 9% from the February high (but let's be real—some local markets are easily down 20% already).

With mortgage rates across the spectrum set to push above 5% as the Bank of Canada tightens further, this downward price discovery is probably going to persist well into next year, and anyone holding out for better market conditions is going to need a stroke of luck.

Table 1 - Canada — Existing Home Sales

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