The Buyer's Market: How Current Conditions are Shaping Canadian Real Estate
Canada's housing market is witnessing a significant shift, with buyers gaining a stronger foothold in several major cities. This change in dynamics, brought about by a combination of high interest rates, affordability challenges, and economic uncertainties, has resulted in a period of reduced sales activity.
According to Robert Hogue, Assistant Chief Economist at RBC, buyers are now in a "strong bargaining position," especially in urban hubs like Toronto and Vancouver. This trend is expected to continue until we see a shift in interest rates. The last four months have seen a consistent decline in home sales nationally, with a notable 5.6% drop from September to October. This downturn in sales is particularly evident in key markets such as Toronto, Hamilton, Ottawa, Montreal, Vancouver, Victoria, and the Fraser Valley, leading to a dip in the MLS Home Price Index in some of these areas.
Toronto's market is significantly impacted by high interest rates, causing resale activity to plummet to one of its lowest levels in recent decades, excluding the initial pandemic lockdowns. Since August, Toronto's MLS HPI has fallen by approximately 4.8%, translating to a near $56,000 decrease. Hogue predicts further price reductions in the near term as the market clearly favors buyers.
In Vancouver, the scenario is similar. Resale activity has been declining for six months, potentially reaching a new low soon. With inventory gradually increasing, price reductions are expected to continue.
Montreal presents a more balanced situation, yet it's still quiet. Resale numbers have dropped in three of the last four months, with a further 2% decrease anticipated in November. Though new listings are rising, they haven't yet surpassed demand. Nonetheless, the median prices for single-family homes and condos have been falling for two months, a trend likely to persist if demand weakens.
Calgary, however, stands out as an exception in 2023, maintaining strong market performance despite increased interest rates. Yet, even this market showed signs of moderation last month, marked by a significant 38% year-over-year increase in new listings and a 3.5% decrease in resales. This shift suggests a move towards a more balanced market, though prices in Calgary continue to rise more rapidly than in other Canadian cities.
Despite the growing advantage for buyers, the market has not seen a concerning rise in supply that might indicate a wave of forced selling due to mortgage renewal shocks. However, with an estimated 2.2 million mortgage holders potentially facing renewal shocks in 2024 and 2025 in a high-interest rate environment, the possibility of distress sales remains if interest rates stay the same next year.
For potential buyers, this period presents an opportunity to leverage their strong bargaining position, while sellers may need to adjust their expectations in this evolving market landscape. The Canadian real estate market is poised at a critical juncture, and the next few months could be pivotal in determining its direction.
