EconoFACTS

May 15, 2024 | 10:19

Roaring City? No, Not for Housing

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

For a change, the Canadian housing market appears to be having a calm spring. Existing home sales dipped 1.7% in seasonally adjusted terms in April from the prior month, even as new listings rose a sturdy 2.8%. This combination of solid new supplies and lukewarm demand helped keep prices down slightly from year-ago levels. At the same time, housing starts slipped slightly last month to an unassuming 240,200 units, just a tad below the past year's average, but right in line with our (mild) expectation for the year.

On the sales data, perhaps the most noteworthy data point was the 6.5% rise in existing listings, the second largest monthly increase on record, and leaving the supply of properties for sale the highest since pre-COVID days. Put another way, there was the equivalent of 4.2 months of inventory last month, also the highest since early 2020. As CREA notes, most measures suggest the market remains largely balanced, perhaps moreso than at any time since prior to the wildness of the pandemic years.

One small surprise in today's results was the reported 10.1% y/y rise in sales activity, especially given soggy results in Toronto and Vancouver. But large bounces in many medium-sized cities, aided by the timing of Easter this year, helped bump up the headline tally. The changing city mix—soft activity in the priciest cities—helps explain why average transactions prices fell 1.8% y/y. As the attached table shows, none of the nine largest cities reported a price drop in April. Only five of the 26 largest cities reported price drops last month, and four of those were in Southern Ontario. However, the MLS Home Price Index, which adjusts for quality mix, was flat in April from the prior month and still sits 0.9% below year-ago levels. It remains down 14% from the all-time peak reached in early 2022 on a national basis.

While there was a wave of supply in the existing housing market, that wasn't really the case in new building. Despite the full-court press by policymakers to build, build, build, the reality on the ground is that housing starts continue to gradually ebb. After hitting the highest level of starts on record for a two-year period in 2021/22 (at nearly a 270,000 pace), starts simmered down to just over 240,000 last year, and will struggle to hit that mark in 2024. To put these figures in perspective, the building goals set out in this year's federal budget implied an annual pace of construction of roughly double that rate—not going to happen. The other key point is that multiples remain, by far, the dominant form of starts, accounting for roughly three-quarters of new building in the past year. Because multiples take much longer to complete, this also suggests that new supply will not come riding to rescue for strained affordability soon.

Bottom Line: Sales activity remains uneventful during the key spring selling season, keeping a tight lid on prices—which is a welcome development, given the extreme unaffordability in the housing market. It's a bit of a mixed message on the supply side, with listings solid, but new building gently cooling. For the Bank of Canada, a calmer housing market will provide a bit more comfort that some small rate trims won't spark a major flare-up in prices. At the margin, cooler home prices and more ample listings slightly increase the chances of rate relief in coming months. When it comes to Canadian housing, calm is good.

Table 1 - Canada — Existing Home Sales

(% change)

Source: BMO Economics, Haver Analytics, CREA

Table 2 - Canada — Housing Starts

(thousands of units : a.r.)

Source: BMO Economics, Haver Analytics