Thoughts

September 06, 2024 | 13:33

Canadian Housing: Those Lazy, Hazy, not-Crazy Days of Summer

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Several Canadian cities released August existing home sales results this week and, to little surprise, buyers have greeted the Bank of Canada’s initial rate cuts with a collective shrug. Sales remain subdued, inventory continues to rise, and prices are mostly flat to lower. At best, lower rates have provided limited stability without sparking a recovery.

Sales in Canada’s priciest region, Greater Vancouver, plunged 17% from a year ago and remain 26% below the decade norm for the month. Active listings shot up 37% y/y and are 21% above normal. Accordingly, benchmark prices slipped in the month and are down 0.9% y/y. The super-expensive detached homes market favours buyers—if only they could afford them. The only reason prices haven’t fallen faster is that sellers aren’t desperate and believe lower rates will eventually harden demand. In the nation’s second-priciest region, Greater Toronto, sales rose modestly in August, but remain 5.3% below year-ago levels after falling in five of the prior six months. Active listings jumped 46% y/y, sending benchmark prices down 4.6%, though they have steadied recently. Condo prices are even weaker due to a glut of small investor-owned units that few people wish to squeeze into. Driving west along the 401 in search of more affordable options, sales remain soft in the London/St. Thomas region (-6.0% y/y) while active listings have shot up 19%, creating an ample 5-month supply and sending median prices down 3.2% y/y. Travelling further west, sales in Windsor remain well below normal but have firmed in the past year, bringing growth in median prices to 1.9% y/y.

Outside B.C. and Ontario, the less expensive regions of the country have cooled a bit, possibly due to a drop in international students. Calgary’s sales are down 20% from last year’s record high, but remain 17% above long-run norms. Sellers, though still calling the shots given the tight 2.1 month supply, have ceded some pricing power as inventories jumped 37% in the past year. Benchmark price gains have moderated to 6.3% y/y from double-digit gains earlier this year. Edmonton’s robust market has also piped down, with sales off 12% in the month though still up 16% in the past year, and benchmark prices are up 7.6% y/y.

The affordable pockets of the country should benefit more from further rate reductions, while the still-expensive regions are unlikely to make much headway until the central bank has chopped rates further (we see another 125 bps by June 2025). With the 5-year Canada rate at a 16-month low of 2.8%, a sub-4% fixed mortgage rate could be in the offing; but, barring an even larger drop, poor affordability will likely remain an issue in B.C. and Ontario. Given ample supply and soft prices, buyers are in no rush to jump into the market, while sellers (and notably investors) are likely to take advantage of any upturn in prices to add to supply. The recovery is coming, but it won’t be V-shaped. That’s good news for buyers and borrowers, as the central bank likely won’t need to worry about a resurgence in shelter costs fanning inflation.