June 2023 Housing Market Report
Updated: Nov 1
Canada's housing market is gaining momentum, with both home resales and prices increasing rapidly in May. This trend is expected to continue into June as more properties become available for sale. A substantial 6.8% month-over-month increase in new listings in the previous month helped meet the pent-up demand that had built up during a year-long correction.
The current recovery is stronger than initially anticipated. It was expected that activity would rebound slowly, primarily due to ongoing affordability concerns limiting potential buyers. However, the Bank of Canada's decision to pause its interest rate hikes earlier this year has significantly boosted demand this spring. Nonetheless, there are doubts about the sustainability of this strength beyond the next month or so, especially with the Bank of Canada's mild rate hike in June and the possibility of further monetary policy tightening, which may slow down the pace.
Pre-pandemic level home sales
Home resales are rapidly approaching pre-pandemic levels, with a 5.1% month-over-month increase in purchase transactions in May and a sharp 11.3% spike in April, narrowing the gap to just 6% below the vibrant levels of February 2020.
The recovery has been widespread across Canada, with transactions increasing significantly in all provinces, led by British Columbia and Ontario. The Vancouver and Toronto areas have seen strong gains, although they were starting from historically depressed levels. Most markets are still running below pre-pandemic levels, except for Alberta and Saskatchewan, which never dipped below those levels during the correction.
After a more than 15% drop from its peak in February 2022, the national composite MLS Home Price Index has risen by 4.1% in the last two months, including a 2.1% month-over-month increase in May. Prices have appreciated in several Ontario markets and other regions. While prices remain generally below year-ago levels, upward momentum and declining trends from the previous year are likely to push annual rates into positive territory in some parts of Western Canada, Quebec, and the Atlantic Provinces.
Sellers continue to hold significant pricing power due to limited supply
Conditions are expected to ease somewhat in the near future, bringing markets closer to balance. A forecasted 25 basis-point rise in the Bank of Canada's policy rate is expected to cool demand temporarily. Balanced conditions are likely to moderate the pace of price increases rather than trigger outright declines.
The current pace of the housing market is seen as unsustainable, and it is unlikely to continue throughout the year. A gradual recovery in both resales and prices is expected until the Bank of Canada starts cutting rates next year. However, the market has shown unexpected strength so far, and this could continue to be the case moving forward.
Adapted from RBC Economics