Canadian Housing Sales Soft But Optimism Grows
For newcomers looking to buy a home in Canada this year, the good news is that the housing market is forecast to remain "soft," at least for the first part of 2024, as interest rates remain high.
The bad news is that some experts predict that a rebound appears close at hand even before anticipated rate cuts happen.
And it appears they are right.
New statistics from Toronto's real estate board reveal that home sales grew by 37 percent in January compared to last year. The Toronto Regional Real Estate Board (TRREB) report shows that new listings are up by 6.1 percent.
And, according to TRREB’s recent housing market outlook for 2024, GTA home sales will rise by 17 percent this year over 2023 sales.
So, is now the time for newcomers to buy?
A new poll conducted for Bloomberg by Nanos Research showed Canadians, in anticipation of expected interest rate cuts in 2024, became more optimistic about home prices in November. That trend has steadily risen in the months since.
It appears that optimism is bubbling over, at least in Toronto.
Will buyer optimism trigger a recession?
However, Scotiabank housing economist Farah Omran cautions, that if the resulting return of activity occurs too fast and too strong for comfort, and rising prices heighten inflationary pressures, the Band of Canada might consider hiking again.
"Given an already stalling economy," writes Omran in her monthly housing report, "extra hikes might well just be what pushes the economy into a recession—which would have wide-reaching implications."
Canadian housing market uncertain
In other words, for newcomers hoping to buy, the housing market in the months ahead remains uncertain.
This has nothing to do with a Spring or mid-year rate cut that's not gonna happen anyway - Derek Holt, Scotiabank
According to the most recent report from the Canadian Real Estate Association (CREA), national home sales in December 2023 were the lowest since 2008.
Still, sales were up in December compared to November 2023, with national home sales rising by 8.7 percent.
Is a 2024 housing trend developing?
In terms of pricing year-over-year, the national average sale price was 5.1 percent higher in December 2023 than in December 2022.
But do December's numbers constitute a trend that potential newcomer homebuyers can rely on?
As Clarrie Feinstein of the Toronto Star reported on Feb. 6, "the sales-to-new-listings ratio (in Toronto) is now at 50 percent, meaning the GTA is in a balanced market. (Anything below 40 percent is considered a buyers’ market, below 40 a buyers' market and above 60 percent a sellers' market.).
Scotiabank Derek Holt sees several drivers behind the housing surge.
" This has nothing to do with a Spring or mid-year rate cut that's not gonna happen anyway," says Holt, the Vice-President and Head of Capital Markets Economics.
Many factors are at play says Scotiabank
"This is about mismanaged and grossly excessive immigration, lean supply, first-time buyers amassing bigger down payments to capitalize upon slightly cheaper prices, ripping wages, a strong job market, seasonal demand, and better household finances than often portrayed."
In a news release, Shaun Cathcart, senior economist for CREA, said: "Was the December bounce in home sales the start of the expected recovery in Canadian housing markets? Probably not just yet."
CREA reported that the annual home sales total of 443,511 units in 2023 dropped more than 11 percent compared to 2022.
"Technically," said CREA,"(that's) the lowest annual level for national sales activity since 2008."
Smaller Canadian markets may see lower prices
As Omran notes in her report, in 2023, there were 11.1 percent fewer sales than in 2022, along with 7.7 percent fewer listings and 3.6 percent lower average selling price.
Sales in 2023 were 7.8 percent below their 2010–19 annual average, while listings were 10 percent below.
However, some forecasters say some markets across the country will be busy as investors and newcomers look for lower prices in cities outside of the popular "Gateway cities" of Toronto and Vancouver.
Some real estate markets in Alberta are seeing a very different trend from the Greater Toronto Area regarding pricing.
Demand remains high in Calgary
Calgary-based mortgage broker Max Singh said there's "a lot of demand" in his city, particularly when compared to the rest of the country. However, a common denominator is a lack of sellers listing their homes.
"Rising values and limited supply are certainly a challenge for a majority of clients at this time," said Singh.
"We're just getting used to the type of environment that existed in the Ontario and B.C. markets for years and years," he said, pointing out that multiple bids on homes in Calgary are common these days.
Singh also noted that many buyers who are keeping those Alberta markets red hot are not from the province.
Buyers looking to give lowball offers
"We've seen a lot of deep-pocket, out-of-province investors who can easily snap up properties and sweep some of those local folks off their feet with ... large, incredibly strong offers," he said.
Research by Ipsos Public Affairs in 2022 revealed that many newcomers to Canada are homebuyers within their first five years of arriving. Also, one in five homes in Canada are bojght by a newcomer
The Ipsos study confirms a 2019 Royal LePage study showing that although 75 percent of newcomers arrive with savings to buy a home, the average time immigrants wait to purchase a home is three years.
Canadian immigration remains robust
In November, Immigration Minister Marc Miller announced that Canada still plans to settle 485,000 newcomers in 2024 and 500,000 in 2025.
As for current housing activity in Ontario, aspiring buyers and sellers "kind of pack it in" during the winter months, Robert Marsiglio, a real estate agent in Whitby, Ont., told Anis Heydari of CBC News.
Marsiglio said that buyers now are asking him, "How little can I get this house for?" and not, "Let's go to the top of our budget."
"What a buyer is willing to offer on a property and what a seller is expecting, there's a gap that needs to be bridged somehow," Marsiglio told CBC."The only way you make that up is these buyers start earning more money overnight, rates come down magically or home prices correct to levels where things are relatively affordable again."
TD Bank economist Rishi Sondhi advises Canadian and newcomer buyers to be "cautious in drawing too many conclusions from December data." He theorizes that December, typically a month with lower sales, might have been helped by warmer-than-usual weather.
The Building Industry and Land Development Association (BILD) reported that 554 new homes were sold in the GTA in December. That's a 67 percent drop from November.
Year-over-year sales in the GTA rose just 0.5 percent from December of 2022. That's the second-lowest level for the month since December 2008.
I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark - Phil Sopeer, Royal LePage
That number is 67 percent below the 10-year average.
"Both new home buyers and builders remained on the sidelines in December, lacking the confidence to re-engage," Edward Jegg, Research Manager with Altus Group, told Zoe Demarco of Storeys.
Royal LePage predicts an early rebound
"As a result, new home sales were sparse and the likelihood for an appreciable uptick in the first half of 2024 remains dim."
Phil Soper, President and CEO of Royal LePage, told Demarco that he anticipates a housing market rebound in the first quarter of 2024, even before the Bank of Canada announces a possible interest rate cut.
"I believe the narrative," said Soper, "suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark."
However, Omran points to a slowing Canadian economy in 2024 that "might subdue" the ability of hopeful homebuyers, including newcomers, to enter the market.
Still, TRREB President Jennifer Pearce hails a positive start to 2024 in an interview with Laura Hanrahan of Storeys. Pearce foresees a further surge in demand when the Bank of Canada starts lowering its policy interest rate (now at 5 percent).
"The Bank of Canada expects the rate of inflation to recede as we move through the year," Pearce said. "This would support lower interest rates which would bolster home buyers' confidence to move back into the market. First-time buyers currently facing high average rents would benefit from lower mortgage rates, making the move to homeownership more affordable."
All of which might leave newcomers hoping to get into the market scratching their heads.
Steve Tustin is the Editor for Rentals for Newcomers and contributing editor for Prepare for Canada. He is the former managing editor of Storeys.com and a former senior editor at both the Globe and Mail and the Toronto Star.
*Rentals for Newcomers used no AI-generated content in the writing of this story, and all sources are cited and credited where possible.
© Rentals for Newcomers 2023
