Canadian Home Sales See Unexpected Surge to Close Out 2023
With interest rate cuts likely on the horizon, the Canadian Real Estate Association expects the number of homes changing hands in 2024 to grow following a slowdown in 2023. However, experts say they remain cautious about the timing and scale of a potential rebound.
CREA updated its 2024 housing forecast on January 15 as it also reported national home sales data for December. The association said it expects 489,661 residential properties to be sold this year — a 10.4% increase from 2023 — and the national average home price to climb 2.3% on an annual basis to $694,173.
Noting that Canadian housing markets have remained quiet since the Bank of Canada’s interest rate hikes in summer 2023, the association said there’s reason to be optimistic in the new year with expectations for the timing of the first 2024 rate cut pulled forward. “The real test of the markets’ resilience will be in the spring,” said CREA chair Larry Cerqua in a press release, adding that the data for December offered up “a bit of a surprise in sales numbers to cap the year.”
December home sales were up 3.7% compared with the same month in 2022, marking the largest year-over-year gain since August. The actual national average price of a home sold in December was $657,145, up 5.1% from December 2022. The number of newly listed homes fell 5.1% on a month-over-month basis in December.
CREA senior economist Shaun Cathcart said the December bump likely wasn’t the start of the expected recovery, but rather “just some of the sellers and buyers that were holding onto unrealistic pricing expectations last fall finally coming together to get deals done before the end of the year… We’re still forecasting a recovery in housing demand in 2024, but we’ll have to wait a few more months to get a sense of what that ultimately looks like,” he said.
Some buyers may have been inclined to purchase a home as 2023 wrapped up in order to get ahead of the anticipated 2024 boom, said Cailey Heaps, president of the Heaps Estrin Real Estate Team in Toronto. Although borrowing costs are still high, with the central bank holding its key rate at 5%, she said those looking to make a move now have the advantage of potentially finding good deals on the market due to lower demand and less competition.
“The primary advantage is we will likely see upward pressure on pricing once the rates start to drop,” she said. “You’re locking into a higher rate, but … you just factor it into your purchasing price and your overall budget.”
National Bank economist Daren King said data trends from Canada’s largest housing markets — Toronto, Vancouver, Montreal and Calgary — suggest November was likely the trough for home sales, but he agreed the strong figures last month were not necessarily “a sign that the real estate market is now on the rise for good.”
“We’re seeing economic growth decelerating, the job market also is not as good it used to be, we’re seeing the unemployment rate increasing, so of course, we’ll have some headwinds ahead,” King said in an interview. “When we will have more confidence that the Bank of Canada will start decreasing their interest rate — we’re expecting it to decrease in April, probably — at that point, we can expect the real rebound then.”
Others feel the recovery might come earlier than that. A separate report released by Royal LePage suggested the Canadian market is showing signs of home price stability, with the aggregate price of a home increasing 4.3% annually to $789,500 in the fourth quarter of 2023.
Buyer sentiment can have an equal effect on market trends as inventory or interest rates, according to Phil Soper, president and CEO of Royal LePage. “I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark,” he said.
“The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow. We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada’s key lending rate.”
Heaps said the market is anticipating an increase in inventory this year, which adds another layer to the dilemma some buyers face before the cycle of rate cuts gets underway. “Do you buy something now because you feel you’re going to get ahead of the market pricing, knowing that there might be more options in the spring? Or do you wait for more options?” she said. “That’s a very subjective decision that people will make.”
Why Canada’s Housing Market Could Rebound Sooner Than Many Expect
Canada’s housing market is nearing a “tipping point” and its recovery will start sooner than many expect, says a new report by one of Canada’s leading real estate companies.
“I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark,” said Phil Soper, chief executive of Royal LePage said a report. “The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow. We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada’s key lending rate.”
National home prices slipped 1.7% lower in the fourth quarter of 2023, showing that higher borrowing costs were still weighing on the market, said the report. Since the market’s peak in the first quarter of 2022, home prices have fallen 7.9%.
However, they still remain well above their pre-pandemic levels. In the fourth quarter, prices were 18.7% higher than in the same period in 2020 and 22% higher than in 2019.
Overall economic conditions are good, said the report. Unemployment among the working-age population is low, savings levels are higher than normal and mortgage delinquency is at historic lows. “We believe many who need housing have the capacity to enter the market, they simply lack the confidence to transact,” Soper said.
Inventories have increased as sales dropped over 2023, but remain below historic norms, the report said. In the fourth quarter there were four months’ of inventory available in Canada, more than the two months during the housing boom, but less than between five and six months available in 2018 and the first half of 2019.
“The fundamental shortage of housing supply in this country will inevitably put upward pressure on home prices when temporarily sidelined buyers return to the market in the months ahead,” said Soper.
The Bank of Canada is widely believed to have completed this interest-rate hiking cycle and rate cuts are expected later in 2024. Some financial institutions have already begun to offer discounts on fixed-rate mortgages as bond yields decline.
Over the next two years, 45% of outstanding mortgages will be up for renewal, according to data from the Canada Mortgage and Housing Corporation. “That’s about 2.2 million households that will be renewing their mortgages, most at a much higher rate,” said the report.
Among regional markets, Calgary bucked the national trend. This western city was the only market to post a quarterly home price gain at the end of 2023. Prices were up 10.7% from a year ago to $663,500, the highest yearly appreciation in the country.
October home sales in the city were the best on record for that month, said Corinne Lyall, owner of Royal LePage Benchmark. “The city continues to experience a wave of interprovincial migration as Canadians seek out more affordable living options, which is driving further demand for housing here.”
In Toronto, the country’s biggest market, home prices fell 2.1% in the fourth quarter from the quarter before to $1,123,300. They were up 5.1% from 2022. Dropping sales have increased inventory in this city, but Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd., said housing stock in the Greater Toronto Area remains out of step with demand. “With new household formation from young Canadians, older generations wanting to age in place and a record number of newcomers entering the country, new construction cannot keep pace with the rate of demand,” said Yolevski.
Royal LePage predicts that home prices nationally will rise 5.5% in 2024. Both Calgary and Toronto are expected to beat that, with increases of 8% and 6% respectively.
Source: Financial Post
Canadians Are Getting Sick of Waiting on Sidelines for Housing Market to Improve
A growing number of Canadians appear to be getting fed up with waiting on the sidelines for the housing market to improve. Just 20% of potential homebuyers say they’ll wait for prices to drop before making a move to enter the market, and only 21% intend to wait for interest rate cuts, according to Dye & Durham Ltd.’s new consumer trends research for the fourth quarter of 2023.
Those numbers mark a decrease from the third quarter, when 24% said they’d hold off on buying a house until prices came down and 23% said they’d wait for rates to fall. “It appears that many prospective homebuyers are growing tired of trying to time the market,” Martha Vallance, chief operating officer at Dye & Durham, said in a release.
Homeowners are also warming up to the idea of listing their properties for sale and buying a new one sometime this year. The number planning to sell has ticked up to 12% in the fourth quarter from 10% in Q3.
Even renters who had abandoned buying a home are starting to come around, the research showed, with 8% planning to look for a home in the next 12 months, compared to 6% in the third quarter. “Inflation is cooling and interest rates are stabilizing, and with that Canadians are telling us that they have renewed optimism in the outlook for their housing plans,” Vallance said.
Still, most people don’t expect home ownership to grow more affordable this year. Over half think home prices will rise, with 16% expecting big hikes. They’re not very hopeful mortgage rates will come down, either, and only 19% expect decreases this year.
Many also don’t feel that great about their personal finances heading into 2024. 44% think they’re worse off financially, up from 39% in the third quarter, the survey said. A good number are also preparing to pay even more than they did last year for essentials such as food, gas, insurance and rent.
The gloomy outlook extends to the economy. A majority say they’re gearing up for a recession, and 59% expect one to hit in the next 12 months, up from 54% in the third quarter. Another 31% think a recession is already here.
Source: Financial Post