By now, most of you know Canada’s interest rates recently dropped for the first time in more than four years, so how has the housing market reacted?
Well, it may be too early to fully tell, but some signs are hard to ignore that activity is about to pick up.
First, the May data from the Canadian Real Estate Association (CREA):
- Canadian home sales are down 0.6% in May compared to April.
- Newly listed homes were up 0.5% in May compared to April.
- Prices are generally sliding sideways across most of the country (the MLS® Home Price Index (HPI) dipped 0.2% in May compared to April).
Housing data is flat; why is that?
CREA Senior Economist Shaun Cathcart called it a “sleepy month for housing activity in Canada, maybe one of the least interesting in the past couple of years.”
But that’s not likely to last. The May housing data may as well be “ancient history,” Cathcart notes, as it does not include real estate activity following the Bank of Canada’s rate cut decrease announcement on June 5.
Cathcart said June will likely tell a different story as Canadians begin to regain confidence interest rates are stable or on the decline again—a signal many would-be buyers were patiently waiting for to have happen.
So, some buyers will be coming off the sidelines in June and within the next few months, while others will continue to wait for more cuts.
Just, a word of caution from Cathcart:
“Whatever the timing (of rate cuts may be), the point is we are not going back to 2021 interest rates. Based on current expectations, we’re not even going halfway back.”
New listings trending higher
If there are going to be more buyers, there had better be some more listings to help keep the market balanced. That seems to be happening as there are currently 175,000 properties listed for sale on all Canadian MLS® Systems—up 24.8% from a year earlier.
Looking month-over-month, May’s rate of growth for new listings was just 0.5% compared to April, keeping things still well below historical averages. With sales down slightly and new listings up ever so slightly in May, the national sales-to-new listings ratio eased to 52.6% compared to 53.3% in April. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions.
“That first rate cut is expected to bring some pent-up demand back into the market, and those buyers will find there are more homes to choose from right now than at any other point in almost five years,” said CREA Chair James Mabey, a REALTOR® and salesperson based in the Edmonton area.
Prices are down compared to 2023
Shifting focus to pricing, the actual (not seasonally adjusted) national average sale price was $699,117 in May 2024, down 4% from the same time last year.
Looking at trends and prices seem to be sliding sideways across Canada, with areas such as Calgary, Edmonton and Saskatoon seeing rising trends.
The Bank of Canada holds a key
Cathcart said no one really knows how the entire interest rate easing cycle will play out and that attention should be paid to how the U.S. economy is faring. If Canada strays from the U.S. too much, that could cause a rise in inflation again.
“Now most recently, the U.S. had some very encouraging inflation data, meaning maybe they cut sooner, meaning less of a divergence issue,” he said, adding the odds are currently favouring another interest rate cut happening in July.
Cathcart said the Bank of Canada is also monitoring how many of the five-year fixed mortgages that were locked in at sub 2% rates will be coming up for renewal as early as summer 2025.
