Home Prices in Canada Have Stopped Falling But What Does It Mean Going Forward?

Canada's home prices stopped falling in February, according to the latest report from the Canadian Real Estate Association (CREA), ending a streak of five consecutive months of declines,

But what does it mean, particularly for newcomers to Canada looking to enter the Canadian homebuying market in 2024?

This end of the decline in pricing follows the 1.3 percent drop in January. 

“It’s looking like February may end up being the last relatively uneventful month of the year as far as the 2024 housing story goes,” said Shaun Cathcart, CREA’s Senior Economist.

CREA also notes that its seasonally adjusted Aggregate Composite MLS Home Price Index—the measure used to determine these sale prices—is typically stable and that "shifts this abrupt are exceedingly rare." 

 

Only three other times in the last twenty years has there been a sudden increase of this size in the month-over-month percentage change.

Is the housing market in an up-and-down cycle?

Cathcart speculates that "with so much demand having piled up on the sidelines, the story will likely be less about the exact timing of interest rate cuts and more about how many homes come up for sale this year.”

Or is the housing market, posits Scotiabank's Farah Omran, in a new "normal" up-and-down cycle?

Only time and data can tell, writes Omran in her monthly Scotiabank National Housing Report. 

"In reality," said Omran, "the (Canadian) housing market continues to feature significant imbalances between demand and supply, prices that have long disconnected from incomes and Canadians’ ability to afford them, and, so far, a not-so-promising set of actionable solutions by governments. even more housing."

Omran said sales declined in two-thirds of the 31 cities that Scotiabank tracks. 

 

Omran's report also notes that 19 of the markets tracked by Scotiabank were in balanced territory in February compared to 22 in January, while eight were in sellers’ territory compared to 9 in January. 

Housing remains a key issue in Canada

St. Catharines, Barrie, Victoria and Kelowna, which were in balanced territory in January, moved to buyers’ territory in February, said Omran. 

Housing, and specifically the ability of Canadians to buy homes in major markets, remains a major political and economic issue in Canada.

Year over year, Canada’s population grew by 1,031,200 people.

Population growth in February and January 2024 made them the strongest back-to-back months for population growth in Canadian history.

The Canadian government is on track to settle (or exceed) 485,000 newcomers in 2024 and 500,000 in 2025.

Newcomers buying homes quicker than ever

Research conducted in 2022 by Ipsos Public Affairs for the Toronto Regional Real Estate Board (TRREB) revealed that many newcomers to Canada buy a home within their first five years of arriving. 

 

The impact of newcomers on the Canadian housing market is significant, as one in five homes in Canada is bought by a newcomer.

According to CREA, prices in Victoria and B.C.'s Fraser Valley fell 0.9 percent month over month. Prices in Vancouver fell by 0.5 percent. The Niagara Region in Ontario witnessed prices fall by 1.7 percent month over month, and prices dropped by 1.1 percent in Ottawa.

Some areas of Canada experienced substantial growth:

• In the Quebec City region, prices rose 3.8 percent
• all regions of Saskatchewan surveyed by CREA saw prices increase by more than 2 percent.

In Toronto, prices remained relatively flat (increasing just 0.2 percent) as they did in both Calgary (up 0.3 percent) and Edmonton ( up 0.1 percent). Vancouver saw no change in prices at all month over month.

Calgary sees the largest price increase

Sales, however, once again fell nationally  (2.7 percent monthly across 26 national real estate boards).

According to a new report from calgaryhomes.ca,  Calgary saw the largest increase in home prices between 2023 and 2024.

A news release noted, "The average house price in February 2023 was $506,655, which rose to $583,160 in February 2024; this is a 15.1 percent increase."

GTA sales were up year-over-year

The Greater Toronto Area (GTA) experienced the biggest drop in sales (down 11.9 percent). In the Kitchener-Waterloo region, sales dropped 10.6 percent) while in the Fraser Valley, sales fell 9.1 percent.

After two years of mostly quiet resale housing activity there’s a feeling that things are about to pick up - Larry Cerqua, CREA

However, according to the Toronto Regional Real Estate Board (TRREB), GTA home sales were up 17.9 percent in February from last year to 5,607, or 12.3 percent when leap day is factored in.

Population growth, a resilient economy, and the possible end of rate hikes have helped fuel the year-over-year jump, said TRREB president Jennifer Pearce.

“We have recently seen a resurgence in sales activity compared to last year,” Pearce said in a statement.

“Consumers are now anticipating (interest) rate cuts in the near future. A growing number of homebuyers have also come to terms with elevated mortgage rates over the past two years.”

Interest rate cuts are likely only a few months out, so people want to wait and evaluate mortgage carrying costs - Jason Mercer, TRREB

Also, a TRREB monthly report released on April 3 shows that despite fewer home sales than last March, Toronto prices jumped slightly and are expected to accelerate in the second half of the year as economists forecast interest rate cuts this summer.

“You have a lot of people on the sidelines not because they don’t plan to purchase, but they have this wait and see attitude,” said TRREB’s chief market analyst Jason Mercer, as reported by Clarrie Feinstein of The Toronto Star. “Interest rate cuts are likely only a few months out, so people want to wait and evaluate mortgage carrying costs.” 

According to the April 3 TRREB monthly report, Toronto-area sales were down 4.5 percent year-over-year last month.

When will buyers re-enter the market?

In the Greater Vancouver Area (GVA), sales dropped by a substantial 7.5 percent.

Undeterred by the drop in sales in these key markets, CREA Chair Larry Cerqua predicts sales will increase when buyers who have been waiting and watching return to the market.

“After two years of mostly quiet resale housing activity there’s a feeling that things are about to pick up,” Cerqua said. “At this point, it’s hard to know whether buyers are going to wait for a signal from the Bank of Canada (about reducing interest rates) or whether they're just waiting for the spring listings to hit the market."

Start planning now for the fall in rates

Spring is typically the start of a busy time for the Canadian real estate market. For those, including newcomers,  considering entering the housing market in anticipation of lower interest ahead, Zoocasa CEO Carrie Lysenko offers some advice. 

“It’s important for those planning to enter the market to remember that when rates do begin to fall, home prices typically increase."

The Canada Mortgage and Housing Corp. released its latest housing market outlook on April 4. The report predicts that home prices could match peak levels seen in early 2022 by next year and reach new highs by 2026.

True affordability may be a decade away

The report also says that despite an increase in rental housing coming on the market in 2023, supply is not forecast to keep up with demand, leading to higher rents and lower vacancy rates in the coming years.

“Unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024,” CMHC chief economist Bob Dugan said in a statement.

As for the long-term outlook and housing affordability, Housing Minister Sean Fraser conceded in an interview with CTV's Power Play that “it may be the better part of a decade" before Canadians start "seeing housing affordability return to levels comparable to those experienced by past generations. 

Predictions of a normal housing market

Meanwhile, Greater Toronto Area Realtor Dean Artenosi told Sammy Hudes of Canadian Press on April 8 that the current moment is a "tipping point where the worst is behind us."

Hudes said the central bank has signalled that interest rates have "levelled out" through its consecutive rate holds, and that has made buyers more optimistic.

"The mood and the mindset, the psyche, is that we're back to a normal market," said Artenosi, co-owner of Coldwell Banker The Real Estate Centre Brokerage.

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 2024