Storm clouds bearing down on Canadian housing markets

An adage that perfectly describes the current state of the ‘Canadian housing market’ would be ‘what goes up, must come down’ as April’s housing numbers show home prices and resales in retreat. “Two important trends emerged in Canada's housing market in April,” writes Robert Hogue, deputy chief economist at RBC Economics. “First, the full impact of trade tensions on buyer sentiment may be nearing its peak and second, a price correction is taking place, particularly in the country’s most expensive markets.” Those markets, in Southern Ontario and BC, are experiencing a softening of the supply/demand equation, triggering a price correction that could persist, says Hogue, adding markets such as Toronto and Vancouver have influenced the composite MLS Home Price Index, which fell for a fifth consecutive month in April, down 1.2% from March and 3.6% year-over-year. National sales, says Hogue, stabilized on a national basis in April, down 0.1% from March following a sharp cumulative 19% decline over the previous four months. There is, of course, no such thing as a ‘Canadian national housing market’ (except in the corridors of the Bank of Canada and mortgage underwriters), as Hogue acknowledges by putting his focus on Southern Ontario and BC. .There is a “material correction underway in the Toronto area,” says Hogue. “Toronto's composite MLS HPI has fallen 6.2% over five months including April's 1% monthly decline. Larger corrections are evident across Southern Ontario: London down 7.7%; Kitchener-Waterloo down 7.6%; Niagara down 6.9% and; Hamilton down 6.5%,” he says, adding, "every Ontario market recorded month-over-month price declines.” In BC, the Vancouver and Fraser Valley markets are experiencing weakness and seeing 2.8% composite price drops over four months. A glut of new condominiums in Ontario and BC is bringing prices down, says Hogue. “The correction has been most pronounced in the condominium segment across major Southern Ontario and BC markets,” he says. "Toronto's condo MLS HPI is now down 7.3% annually, while Vancouver saw a 2% fall.” The increased supply of condos has flipped those markets back into buyers’ territory, after being in sellers’ territory for many years, “creating some of the most buyer-friendly conditions in decades,” says Hogue. Elsewhere in the country, markets in "Alberta, Saskatchewan, Manitoba, Quebec and Atlantic Canada remain comparatively tight with supply-demand fundamentals still supporting modest price growth,” says Hogue. “Montreal has seen relative stability in resale activity with single-family home and condominium prices rising in April on a monthly and annual basis.” .“However, price appreciation will likely moderate across these regions as broader economic uncertainty continues to weigh on buyer sentiment.” Over the last 24 months, Alberta has seen the most housing activity, as hundreds of thousands of Canadians and international immigrants arrived in the province, but the inflow has slowed. According to the province’s Economic Dashboard, “in Q4 2024, net migration into Alberta was 25,300 compared to 44,032 in Q4 2023, a decrease of 42.5%”, signalling a slowdown. The hope of owning a home is down as economic anxiety deepens and a growing number of Canadians have shelved their home buying plans, according to BMO’s latest Real Financial Progress Index, released on Wednesday. “Seventy-four percent of respondents now say they’re concerned about a looming recession, up sharply from 60% just a month earlier,” reports Canadian Mortgage Trends (CMT). “And with affordability worsening, half of Canadians now believe homeownership is even less attainable that it was a year ago.” The BMO report says the share of prospective buyers waiting for mortgage rates to fall remains high at 67%, but what’s notable is that 38% are holding out for rates of 3% or lower, levels well below today’s offerings, said Robert Kavcic, senior economist at BMO. .“There is some clear underlying weakness as inventory builds and investors remain absent,” said Kavcic. “Suffice it to say, homebuyers are losing confidence and motivation, especially in areas of BC and Southern Ontario.” “While 59% still say owning a home is one of their top life goals, 66% feel less confident they’ll achieve that goal compared to five years ago,” adds Kavcic. “The shift has been particularly sharp among younger Canadians, many of whom are also willing to consider relocating to another province, or even another country, for affordability.” The BMO report also said 61% of Canadians say they’re content renting, a sentiment especially common among Boomers and Gen Xers.