Canadian housing sales slump as spring blooms

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Buyers are now in a favorable position

Published on May 21, 2024Last updated 19 hours ago4 minutes reading time

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A home for sale in Toronto, Ontario.A home for sale in Toronto, Ontario. Photo by Evan Buhler/The Canadian Press Files

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By Murtaza Haider and Stephen Moranis

Like the famous cherry blossom trees in Toronto's High Park, the Canadian real estate market typically blooms in the spring and peaks in late April and early May. This year, however, the cherry blossoms bloomed as planned, but the real estate market remained sluggish, awaiting the warmth of an economic recovery. An expected rate cut in June could potentially provide the necessary boost.

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The latest data released by the Canadian Real Estate Association (CREA) showed sales in April were 1.7 per cent lower than the previous month. In fact, home sales have been below the 10-year monthly moving average since the Bank of Canada initiated rate hikes in early 2022.

The drop in sales coincided with a surprise increase in inventory. CREA reported a nearly three per cent increase in new listings across Canada compared to the previous month, but the national average ignores the wide swings in individual markets. This is particularly true in Toronto, Canada's largest market, where there were 47.2 percent more listings in April than in the same month last year.

With record numbers of properties listed for sale across the country – the highest number since the start of the COVID-19 pandemic – and sales declining, buyers are now in a favorable position. This market imbalance allows buyers to negotiate more effectively while forcing sellers to temper their expectations.

A longer-term look at the Canadian markets shows a promising trend. Compared to April 2023, sales rose 10.1 percent last month. Despite some fluctuations, real estate transactions have recorded an upward trend since the beginning of 2023. This suggests a robust recovery is possible if interest rates remain supportive throughout the summer.

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And what about prices? Rather than comparing average prices over a period of time, we rely on CREA's Home Price Index Benchmark Price. This quality-adjusted estimate takes into account changes in the types and sizes of homes sold over time. In April, Canada's benchmark price was unchanged from the previous month and decreased 0.6 percent from a year ago.

Most real estate markets in the Maritimes showed strength with noticeable price increases. In Moncton, prices rose 12.2 percent year-over-year and in Halifax, prices rose 4.3 percent. In Quebec, benchmark prices rose 3.3 percent in Montreal and 7.2 percent in Quebec City. Real estate markets in the Prairies and Rocky Mountains are also seeing price recovery. In Calgary, benchmark prices rose nearly 10 per cent, while Edmonton saw a 5.6 per cent increase.

The Greater Toronto Area real estate market continues to show signs of weakness, with prices down slightly in April from a year ago. Like Vancouver, where prices rose 2.7 per cent year-on-year, Toronto has experienced huge price swings in recent years, rising sharply at the start of the pandemic and then falling in 2022 as interest rates began to rise. Because of Toronto's relatively high prices, an uptick is more dependent on a reduction in mortgage rates.

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Housing markets vary by location and product type, and exhibit significant variation even within local markets. The Greater Toronto Area regional housing market exemplifies these differentiated outcomes. This market is split between the city of Toronto, often referred to by the 416 area code, and the surrounding suburban housing markets, known as 905.

The 416 market is dominated by condo sales, which saw a 9.5 percent year-over-year decline in April. In contrast, condo sales in the 905 market fell just 0.4 percent. Suburban markets are dominated by single-family homes, with April sales down 9 percent compared to April 2023. The bottom line: Condominium sales are struggling in downtown Toronto, while low-rise home sales are facing challenges in the 905 suburbs.

John Asher, co-founder of a Toronto-based self-managed real estate platform that simplifies the home buying process and reimburses buyers up to 80 percent of buyer's commissions, sees stronger headwinds for Toronto's condo market. He has observed the decline in sales and the increase in listings, essentially characterizing Toronto as a “buyer's market.” However, Asher also points to a worrying trend: the increase in listing cancellations. This means that the number of offers is increasing, but sellers are withdrawing their properties from the market out of frustration.

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Investment properties are more vulnerable in a high interest rate environment because higher mortgage payments mean higher ownership costs. If average market rents for condos are not high enough to cover these costs, investing in condos becomes less attractive. As a result, April condo sales in Toronto were the lowest since 2017, with the exception of 2020 when pandemic-related restrictions partially paralyzed markets.

While the cherry blossoms bloom again next year, the real estate market won't have to wait as long for a revival. With a favorable interest rate policy and a timely reduction in mortgage rates, we could see an increase in sales later this summer.

Murtaza Haider is director of Regionomics Inc., a consulting firm specializing in predictive analytics and machine learning. Stephen Moranis is a real estate industry veteran. They can be accessed on the Haider-Moranis Bulletin website at www.hmbulletin.com.

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