Significant changes have been seen recently in most of Canada’s largest markets, with the supply of homes for sale increasing (the outlier being Edmonton), tapping the brakes on the rate of price increases. However, expectations of rising sales after two rate cuts by the Bank of Canada have not materialized, says Robert Hogue, assistant chief economist with the Royal Bank of Canada (RBC). “After a small uptick between May and June, resales fell again in some markets including Vancouver, Calgary and Toronto in July,” says Hogue in a report released on Thursday. “However, activity picked up slightly in Edmonton and Montreal (but) it will take deeper rate cuts to meaningfully reduce ownership costs and stimulate homebuyer demand more broadly.” “Supply, on the other hand, continues to grow,” adds Hogue. “In some cases, such as in Toronto, it reflects the completion of many newly-built units (mainly condos) that owners (mainly investors) are looking to offload.” “In other cases, it could be sellers betting lower rates will spur buyer interest and improve sale outcomes. In some, it may be a sign of homeowner distress arising from high rates.” Hogue notes the balance between supply and demand varies considerably from market to market. “Conditions in Calgary, Edmonton and to a lesser extent Montreal favour sellers. It’s the opposite in the Toronto area where buyers have the upper hand, albeit just barely. A tenuous equilibrium holds in Vancouver,” he says. “Still, home prices have generally levelled off since spring. Calgary — Canada’s housing hotspot — remains an exception, though gains have moderated recently. We see flat price trends persisting until larger rate cuts heat up demand more materially.” Hogue overviews three markets in his report. Calgary “Some of the exceptional firmness in supply-demand conditions eased last month as more sellers came to market while buyers took a breather. We estimate new listings rose 6% between June and July, but home resales dipped more than 9%,” says Hogue. “These have resulted in a rise in properties for sale — from extremely low levels — and a further slowing in the pace of price appreciation.” “At 7.7%, the annual increase in Calgary’s composite MLS Home Price Index (HPI) is still very robust though it represents a notable deceleration from 10.8% just four months ago in March. We think there’s only limited room for further moderation given persistent tightness in the market and low inventories.” Hogue adds the demand for housing in Calgary is “extraordinarily strong amid explosive population growth, making it highly unlikely that prices will stall or decline anytime soon.” Vancouver Hogue says Vancouver has been relatively static over the last few months, with sales activity slow, but trending slightly higher. “Supply and demand are largely in balance with buyers holding more bargaining power than they did a year ago. The number of homes for sale is climbing, inching closer to levels that prevailed before the pandemic and prices have stayed essentially flat,” he says. “In July, Vancouver’s composite MLS HPI was down 0.8% from a year ago with condo apartments accounting for the decline. We see the potential for a mild price correction ahead if supply outpaces demand.” Hogue estimates new listings grew faster than home resales between June and July, on a seasonally adjusted basis. “This could continue in the near term. High interest rates exert tremendous stress on many existing homeowners (including investors), and a growing share may be forced to sell, fueling supply,” he says. “On the other end, Vancouver-area buyers face the biggest affordability hurdles in the country, which is likely to constrain demand for some time. A material drop in rates will eventually alleviate tensions all round, but that is likely months away.” Toronto “The market can best be described as lethargic this summer,” says Hogue. “A modest resales advance in June was mostly reversed by a 0.7% dip in July, leaving activity little changed from where it was in the spring (on a seasonally adjusted basis).” “Buyers are clearly looking for larger rate cuts amid strained affordability. The situation is livelier on the supply side, though. Inventories are accumulating rapidly as soft demand comes well short of absorbing the surge in properties up for sale.” Hogue points to Toronto’s condo apartments market, where a wave of new unit completions this year boosted active listings by 64% from a year ago, while listings of single-family homes are up less, although by a still considerable 48%. “Home prices have stayed largely flat overall in the past four months,” says Hogue. “The aggregate MLS Home Price Index benchmark was $1.09 million in July, virtually unchanged from April. But it’s down 5% from a year ago, reflecting last fall’s mild correction. Condo prices accounted for most of the annual decline (-5.1%) with detached home prices (-4.3%) not far behind.” “We expect mounting condo inventories will put downward pressure on prices in the near term. Recovering demand later this year and into 2025 should contain that soft patch.”
