On Friday, September 15, 2023 the Canadian Real Estate Association (CREA) released its national housing statistics for the month of August 2023. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for members:
For all the housing crisis talks going on and with the issue now back on the front burner, the resale market has actually been quite calm as of late.
In Canada, we have many households and each one of them needs a place to call home. High interest rates mean households aren’t currently able to make the transition from renting to owning at the rates they used to. Given that, we’re currently seeing the competition more noticeably in the rental markets where demand is piling up.
Home sales dipped 4.1% from July to August. No surprise, as August was the first full month of data following the Bank of Canada’s July rate hike. It feels like buyers are going to play wait and see with the Bank of Canada this time around after the resumption of rate hikes this summer which caught some off guard.
So, sales are running a little below average currently which is an improvement from earlier this year. Considering what interest rates have done since last spring, that’s not bad.
Prices have been the bigger surprise. They’ve managed to regain about 40% of last year’s losses at this point although appear to be levelling off now. The evolution of market conditions over the next few months will dictate whether prices can hold where they are or will soften again. Right now, it’s a mixed bag across the country. We’re still seeing more gains than declines in August, but market conditions are softening.
The story will continue to be dominated by interest rates for some time. The good news is financial markets currently seem to think the Bank of Canada is near the top of rates this time. However, August inflation came in stronger than expected which upped the odds of at least one more hike. The bad news is financial markets also think we may be stuck near current rates for another year before seeing any cuts.
If I had to make a mini forecast for the last few active weeks of 2023 before the snow starts to fly, I’d guess things will soften a bit more. Sales for the first couple of weeks of September didn’t do anything to write home about despite a larger than normal seasonal burst of new listings for buyers to choose from.
Looking towards next year, there should be a lot more certainty about whether rates are going up further or not. Conditions will only get tougher in the rental space which will make ownership more attractive by comparison. And, buyers who’ve seen their plans thwarted by high interest rates will have had more time to get a new game plan for what they can afford.
I’d guess the worst of the low activity numbers may be almost behind us. That said, I’m not sure we’re going to see the re-emergence of a vibrant market until rates are substantially lower than they are today, and at this point those goal posts have only been pushed further out.
Don’t forget about maybe the biggest wildcard over the next few years – mortgage renewals. I’ll be looking for more information from the Bank of Canada on that, hopefully in the October Monetary Policy Report. When they talk about the “lagged effects of monetary policy,” in Canada, mortgage renewals are a big part of that.
