It appears that Canada's housing market is finally stabilizing, at least in terms of transaction volume. The significant decline in home resales has been easing in recent months, with February showing a slight 2.3% increase from January, reaching an annualized total of 403,400 units. This suggests that many local markets are nearing a bottom in terms of sales activity.
However, this stabilization in transaction volume hasn't halted the price correction. The national composite MLS Home Price Index continued its decline in February, falling by 1.1% month-over-month. This marked the 12th consecutive monthly decline, although the pace of decline did moderate slightly from the previous six months.
A sharp drop in new listings and the resulting tightening of demand-supply conditions in February could signal a moderation in price declines in the coming months. If this trend continues, it supports the view that prices may bottom out sometime in the summer or shortly thereafter, with the timing varying by market.
Increased listings have not panned out
Interestingly, despite concerns that soaring interest rates would lead to an influx of sellers, there was a surprising 7.9% decrease in the number of homes listed for sale in February. This trend was particularly notable in Ontario and British Columbia, which are facing more significant pressure from higher interest rates. While this decline aligns with a year-long downward trend, the magnitude of the shift in February is seen as an anomaly.
Activity remains slow
Buyers remained active despite the dip in supply last month, with resale activity increasing in all major markets. However, these increases did little to change the overall picture, as activity remains generally depressed, reaching decades-low levels in some cases, excluding the shutdown period.
Widespread price declines
Price trends in February were largely consistent with previous months, with property values continuing to decline in the majority of local markets. Ontario and British Columbia have seen the strongest corrections, with the MLS Home Price Index plummeting by 19% in Ontario and nearly 13% in BC since the peak a year ago, exceeding the 16% national decline. Smaller Ontario markets have experienced the most significant declines.
Rapid rebound not expected
While a bottom in the housing market is in sight, it's important to note that a rapid rebound is not expected. Home resale activity is expected to stabilize first, followed by prices a few months later, assuming the Bank of Canada concludes its interest rate hikes (the base case scenario). The recovery is anticipated to start slowly later this year, with affordability issues and a weaker economy hindering buyers. However, the pace is expected to pick up in 2024 as the economy strengthens, inflation returns to target levels, and the Bank of Canada reverses some of its rate increases.
Booming immigration is expected to fuel demand in the medium term, and possibly beyond, raising concerns about potential supply shortages if homebuilding doesn't significantly increase. This outlook suggests a cautious approach to the housing market recovery. has shown unexpected strength so far, and this could continue to be the case moving forward.
Adapted from RBC Economics