Watching and Waiting
Canada's housing market remained subdued overall heading into the tail end of summer. Sales volumes remain steady at reasonable levels, new listings are stable, and prices are trending flat across most markets. To this point, the early stage of the Bank of Canada easing cycle has not triggered a rebound in prices or activity, and we suspect that any such bounce remains a few rate cuts away.
Canadian existing home sales edged up 1.3% in seasonally-adjusted terms in August, but were still down a modest 2.1% from a year ago. This continues a trend of largely stable sales activity consistent with the low end of the pre-COVID range. Soft landing? To this point, almost a perfect one. Meantime, new listings continued to gradually rise, up 1.1% in August (seasonally adjusted) and 2.1% from a year ago. Listings flow is firm relative to past-decade norms, but not completely saturating the market. Indeed, the months’ supply of homes for sale dipped slightly to 4.1 in August, although still well up from the early-2022 low of 1.7. The sales-to-new listings ratio has also settled into what we'll call 'lightly balanced' territory, effectively unchanged at 53%, where it has spent the past five months.
As for home prices, you guessed it: flat. Balanced overall market conditions leave price trends going sideways, with the MLS Benchmark price still down 3.9% in the past year, but holding flat in recent months. Prices are effectively unchanged over the latest 3- and 6-month periods.
Variable market conditions continue to show through at the regional level. While Alberta’s market is still tight, the balance has softened in recent months. Sellers’ markets persist across the Prairies and Atlantic Canada, where relative affordability and inward migration flows continue to support demand. Vancouver and Montreal look mostly balanced, and are posting a slightly better-than-average price performance over the past year. Ontario remains the soft spot, with buyers’ markets, or very loosely balanced markets, still scattered across various areas of the province. Toronto continues to see scarcer single-detached housing counter plenty of resale condo inventory—the most since 2009. In broad terms, Toronto is still the softest-looking major city in terms of market balance and price trends.
All told, the resale housing market has yet to respond meaningfully to Bank of Canada rate cuts, which was entirely expected given the existing spread between fixed and variable mortgage rates. But, with expectations of more aggressive easing getting built into the market (both in terms of the speed of rate cuts, and their near-term end point), we continue to see gradual reductions in fixed mortgage rates. It's hard to pin exactly what rate level would wake the market up, since it will also depend on prevailing economic and job market conditions. But, if/when we see mortgage rates crack below 4%, things could start to get more compelling from an affordability and investment perspective. We're not there yet, but stay tuned...