Cdn. Existing Home Sales (Mar.) — Near a Tiffing Point?
-
bookmark
-
print
- Keywords:
Canadian housing activity was largely stable in March, but a key spring selling season lies ahead. Existing home sales edged up 0.5% in March (seasonally adjusted) and were up a modest 1.7% from sluggish year-ago levels (although an early Easter long weekend likely reduced volumes somewhat). While current activity might seem quiet compared to the exuberance in 2021 and early 2022, sales volumes are trending about in line with pre-COVID norms, albeit at the low end of that range.
Meantime, new listings dipped 1.6% in March, but were still 10.1% above levels seen a year ago. The sales-to-new listings ratio rose slightly to 57.4%, which leaves the market squarely in balanced territory—the 10-year average is 61%, and these latest readings are consistent with very flat price trends. The months’ supply of homes available at the current sales pace held steady a 3.8, which represents a market still looking for listings (the 10-year average is 4.4).
These dynamics are still pulling prices down, but the negative momentum is easing. The national benchmark HPI was down 0.3% in March (3.6% annualized); it was down 5.7% annualized over the latest three months; and 8.2% over the latest six months. From a year ago, prices are up 1.1%, so this pattern reflects the second correction that began last summer.
Some significant regional disparities continue to build. Calgary is still the strongest larger market in Canada, with the sales-to-new listings ratio now pushing above 100% (all listings are clearing within the month), and prices now up 11% y/y to new record highs. Vancouver and Toronto remain largely balanced (stronger conditions in single-detached versus condos); Montreal’s market is nudging into sellers’ territory; and much of Atlantic Canada is still firm. Most of the softness remains concentrated around Southern Ontario.
Here are some key thoughts and themes heading into the spring selling season:
Eyes on the BoC: The Bank of Canada left rates unchanged on April 10th, as fully expected, and the door remains open for a rate cut by June/July, with the next two CPI reports to prove critical. That said, the amount of easing might be limited by much tougher U.S. inflation trends. The market is currently pricing in just over two rate cuts in 2024, which would be far short of the relief many were hoping for coming into 2024.
Little affordability relief this year: Five-year fixed rates are generally the lowest available on offer in Canada, so as the Bank of Canada (eventually) cuts rates, the affordability impact will be initially limited since variable rates are well above fixed. As such, actual affordability and qualifying amounts are still going to be in tough for a while, especially with 5-year GoC yields now up roughly 50 bps from the late-December lows.
Mind games: Let’s just say that if the BoC doesn’t cut rates soon, many in the real estate market are going to be seriously disappointed. A few interesting measures of market psychology are playing out now that suggest BoC rate-cut expectations are rooting. First, Bloomberg/Nanos survey data show that market sentiment has improved meaningfully in recent months. Net expectations for home price growth over the next six months have improved to the highest share since mid-2022—sentiment pivots have clearly been triggered by the BoC during this cycle. At the same time, we’ve witnessed an uptick in variable-rate mortgage originations, to 20% of new activity in the latest two months from less than 5% during the summer. That’s despite as much as a 150 bp premium in variable rates over five-year fixed—fewer and fewer want to lock in with rate cuts presumably looming, and/or they're discounting improved affordability ahead.
Ottawa eying amortizations: Canada announced a few new housing affordability measures ahead of the federal budget, including an extension to 30-yr. amortizations for first-time buyers of a new build, with an insured mortgage. We don’t have a precise estimate on the share of housing activity that this will cover, but suffice it to say that the policy change drills down into a very small segment. As for affordability in this sliver of the market, a switch from 25 to 30-year amortization will add about 8% to buying power at a 5% mortgage rate with a fixed down payment. This could shift some incremental activity toward new builds among first-time buyers (until prices adjust), but the overall market impact should be limited. A more notable change might be one that still lacks details, as Ottawa also says that it will push for permanent amortization relief for existing homeowners that meet specific eligibility criteria—think those that have extended out to dampen the impact of higher rates.
Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing economic, fiscal and real estate trends in Canada. Robert regularly contribut…(..)
View Full Profile >Canadian housing activity was largely stable in March, but a key spring selling season lies ahead. Existing home sales edged up 0.5% in March (seasonally adjusted) and were up a modest 1.7% from sluggish year-ago levels (although an early Easter long weekend likely reduced volumes somewhat). While current activity might seem quiet compared to the exuberance in 2021 and early 2022, sales volumes are trending about in line with pre-COVID norms, albeit at the low end of that range.
Meantime, new listings dipped 1.6% in March, but were still 10.1% above levels seen a year ago. The sales-to-new listings ratio rose slightly to 57.4%, which leaves the market squarely in balanced territory—the 10-year average is 61%, and these latest readings are consistent with very flat price trends. The months’ supply of homes available at the current sales pace held steady a 3.8, which represents a market still looking for listings (the 10-year average is 4.4).
These dynamics are still pulling prices down, but the negative momentum is easing. The national benchmark HPI was down 0.3% in March (3.6% annualized); it was down 5.7% annualized over the latest three months; and 8.2% over the latest six months. From a year ago, prices are up 1.1%, so this pattern reflects the second correction that began last summer.
Some significant regional disparities continue to build. Calgary is still the strongest larger market in Canada, with the sales-to-new listings ratio now pushing above 100% (all listings are clearing within the month), and prices now up 11% y/y to new record highs. Vancouver and Toronto remain largely balanced (stronger conditions in single-detached versus condos); Montreal’s market is nudging into sellers’ territory; and much of Atlantic Canada is still firm. Most of the softness remains concentrated around Southern Ontario.
Here are some key thoughts and themes heading into the spring selling season:
Eyes on the BoC: The Bank of Canada left rates unchanged on April 10th, as fully expected, and the door remains open for a rate cut by June/July, with the next two CPI reports to prove critical. That said, the amount of easing might be limited by much tougher U.S. inflation trends. The market is currently pricing in just over two rate cuts in 2024, which would be far short of the relief many were hoping for coming into 2024.
Little affordability relief this year: Five-year fixed rates are generally the lowest available on offer in Canada, so as the Bank of Canada (eventually) cuts rates, the affordability impact will be initially limited since variable rates are well above fixed. As such, actual affordability and qualifying amounts are still going to be in tough for a while, especially with 5-year GoC yields now up roughly 50 bps from the late-December lows.
Mind games: Let’s just say that if the BoC doesn’t cut rates soon, many in the real estate market are going to be seriously disappointed. A few interesting measures of market psychology are playing out now that suggest BoC rate-cut expectations are rooting. First, Bloomberg/Nanos survey data show that market sentiment has improved meaningfully in recent months. Net expectations for home price growth over the next six months have improved to the highest share since mid-2022—sentiment pivots have clearly been triggered by the BoC during this cycle. At the same time, we’ve witnessed an uptick in variable-rate mortgage originations, to 20% of new activity in the latest two months from less than 5% during the summer. That’s despite as much as a 150 bp premium in variable rates over five-year fixed—fewer and fewer want to lock in with rate cuts presumably looming, and/or they're discounting improved affordability ahead.
Ottawa eying amortizations: Canada announced a few new housing affordability measures ahead of the federal budget, including an extension to 30-yr. amortizations for first-time buyers of a new build, with an insured mortgage. We don’t have a precise estimate on the share of housing activity that this will cover, but suffice it to say that the policy change drills down into a very small segment. As for affordability in this sliver of the market, a switch from 25 to 30-year amortization will add about 8% to buying power at a 5% mortgage rate with a fixed down payment. This could shift some incremental activity toward new builds among first-time buyers (until prices adjust), but the overall market impact should be limited. A more notable change might be one that still lacks details, as Ottawa also says that it will push for permanent amortization relief for existing homeowners that meet specific eligibility criteria—think those that have extended out to dampen the impact of higher rates.
What to Read Next.
Canadian Home Sales: February Made Them Shiver
Douglas Porter | March 20, 2024 | Commercial Real Estate, Economic Insights
Canadian existing home sales fell 3.1% from the prior month in February, in seasonally adjusted terms, suggesting that it's not going to be a one…
Continue Reading>Related Insights
Tell us three simple things to
customize your experience
Commercial
Commercial
-
Who We Are
-
Industry Expertise
- Engineering & Construction
- Engineering & Construction
- Agriculture
- Agriculture
- Trucking
- Trucking
- Public Sector
- Public Sector
- Commercial Real Estate
- Commercial Real Estate
- Dealer Finance
- Dealer Finance
- Professional Services
- Professional Services
- Media
- Oil & Gas Services
- Retail & Wholesale Distribution
- Technology Banking
- Manufacturing
- Manufacturing
- Media
- Oil & Gas Services
- Retail & Wholesale Distribution
- Technology Banking
- Private Equity Sponsors
- Private Equity Sponsors
- Healthcare
- Healthcare
- Franchise Finance
- Franchise Finance
- Business Properties
- Business Properties
- Cannabis & Emerging Industries
- Cannabis & Emerging Industries
-
We Can Help
- Business Strategy
- Business Strategy
- Equipment Financing & Leasing
- Equipment Financing & Leasing
- Manage Cash Flow
- Manage Cash Flow
- Economic Insights
- Economic Insights
- Doing Business in the U.S.
- Doing Business in the U.S.
- Doing Business Internationally
- Doing Business Internationally
- Asset Based Lending
- Asset Based Lending
- Loan Syndication & Agency Services
- Loan Syndication & Agency Services
- Finance Growth
- Finance Growth
- Manage Risk
- Manage Risk
- Mergers & Acquisitions
- Mergers & Acquisitions
- Subordinated Debt-Equity
- Subordinated Debt-Equity
- Wealth Management
- Wealth Management
- Climate Smart
- Climate Smart
-
Our Bankers
Banking products are subject to approval and are provided in Canada by Bank of Montreal, a CDIC Member.
BMO Commercial Bank is a trade name used in Canada by Bank of Montreal, a CDIC member.
Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure | BMOCMC FICC Macro Strategy Commentary Disclosure | Research Disclosure Statements
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c., and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S. , and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Canadian Investment Regulatory Organization and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia and carbon credit origination, sustainability advisory services and environmental solutions provided by Bank of Montreal, BMO Radicle Inc., and Carbon Farmers Australia Pty Ltd. (ACN 136 799 221 AFSL 430135) in Australia.
The material contained in articles posted on this website is intended as a general market commentary. The opinions, estimates and projections, if any, contained in these articles are those of the authors and may differ from those of other BMO Commercial Bank employees and affiliates. BMO Commercial Bank endeavors to ensure that the contents have been compiled or derived from sources that it believes to be reliable and which it believes contain information and opinions which are accurate and complete. However, the authors and BMO Commercial Bank take no responsibility for any errors or omissions and do not guarantee their accuracy or completeness. These articles are for informational purposes only.
Bank of Montreal and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Third party web sites may have privacy and security policies different from BMO. Links to other web sites do not imply the endorsement or approval of such web sites. Please review the privacy and security policies of web sites reached through links from BMO web sites.
Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure | BMOCMC FICC Macro Strategy Commentary Disclosure | Research Disclosure Statements