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Cascading Trends: Shifting Sands in Canada’s Housing Market

Canada Housing Market Analysis
Canada Housing Market Analysis

In recent times, a conspicuous trend has surfaced within the Canadian housing market – the resurgence of sellers. This was particularly evident in October, where a consistent rise in new listings was witnessed across major markets, as per preliminary data from local real estate boards. The catalysts behind this trend are multifaceted, with soaring interest expenses being a prominent factor motivating more property owners to make a move.

However, simultaneously, elevated interest rates have been putting a damper on demand. The resale of homes is now showing signs of weakness in British Columbia and Ontario, although Calgary continues to stand out with its notable vitality. This augmented supply and diminishing demand have effectively alleviated the previously tense market conditions. In several markets, such as Vancouver, the Fraser Valley, and Toronto, the balance has actually shifted in favor of buyers.

This shift has unsurprisingly resulted in modest price declines. In both September and October, the MLS Home Price Index exhibited slight month-to-month decreases in Vancouver, the Fraser Valley, and Toronto. In contrast, Calgary continued to experience an upward trajectory in the index, where the demand-supply equilibrium remains exceedingly tight.

The broader landscape is expected to undergo minimal alterations in the forthcoming months. Buyers are likely to remain on the defensive in various regions of Canada, despite an expanding array of choices available to them. The persistence of high interest rates, ongoing concerns about affordability, and the looming specter of a recession are anticipated to present formidable hurdles. Any substantial acceleration in the market’s revival will have to await a reduction in interest rates in 2024.

Toronto Area: Market Balance Tilting in Favor of Buyers

After contending with limited inventories earlier in the year, buyers are now presented with a more extensive selection as sellers reenter the market. October marked the sixth consecutive month of escalating new listings in the Toronto area, with a robust 11.0% month-over-month increase. Yet, this surge in supply hasn’t stimulated the release of pent-up demand. Home resales continued to decline in October, registering a 1.8% month-over-month decrease. High interest rates, diminished affordability, and growing economic uncertainties are substantial impediments for buyers at this juncture. The marked loosening of demand-supply dynamics over the past four months has begun to exert a cooling effect on prices. The MLS Home Price Index saw marginal declines in both September (-0.2% month-over-month) and October (-0.8%). Further erosion in the near term is anticipated, with buyers assuming a more robust negotiating position.

Montreal Area: Contrasting Forces Restraining the Recovery

Market activity in the Montreal area remains subdued but is gradually recovering from the sharp correction experienced last year. Home resales have climbed by 8.9% since the low point in October 2022 and by over 2% from September 2023, according to our seasonally adjusted estimates. Two opposing forces are at play: an influx of sellers since spring has helped unlock some pent-up demand, while higher interest rates have made home purchases less affordable for buyers, restraining momentum. The equilibrium between supply and demand has eased, resulting in generally stable prices, though the pressure varies across segments and sub-areas. In October, the median price for a condo apartment in the Montreal region increased by 2.3% month-over-month, while it decreased by 2.1% for single-family homes. Prices in both segments showed slight increases compared to the previous year. The outlook for the coming months suggests a continuation of this trend.

Vancouver Area: Rapid Deceleration

A transformation has occurred in the demand-supply dynamics of the Vancouver housing market over the past three months. What was once a firm market has transitioned to a borderline soft one, partly due to a substantial increase in available homes for sale, including a significant rise in October. Buyers have become more cautious in the face of high interest rates and a crisis-level affordability gap. Consequently, the rapid shift has brought an end to the price surge that began during the winter. The MLS Home Price Index for Vancouver declined in both September and October, with decreases of 0.2% and 0.4%, respectively. With new listings surpassing pre-pandemic levels and inventories on the rise, prices are likely to follow a slight downward trajectory in the short term.

Calgary: A Vibrant Market

Explosive population growth and lower ownership costs compared to British Columbia and Ontario have ignited significant interest in Calgary’s real estate market. This has attracted a large number of buyers, leading to a surge in real estate transactions and historically high prices. Home resales have increased for the sixth consecutive month in October, estimated to be up by 4% month-over-month. Despite steadily growing supply, the market remains fiercely competitive for buyers. At present, Calgary stands out as Canada’s tightest and most active market. Consequently, the MLS Home Price Index in Calgary has experienced the most significant increase over the past year, rising by 8.7% among the country’s major markets. It is unlikely that the upward pressure on prices will abate anytime soon.

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