Canada Housing

Home Buyers Remain Cautious as Spring
Market Continues on Subdued Path

Spring market not living up to expectations. Two months into the spring season, Canada’s housing market has not shown the signs of life that some were expecting. Both lingering interest rate uncertainty and housing affordability continue to challenge many potential buyers. National home sales fell 1.7 per cent monthly in April, which followed a flat reading in March. This has translated into minimal value appreciation as the median price of a single-family home has held essentially unchanged since the start of 2024 and was down 0.3 per cent year-over-year in April. In contrast, many sellers are eagerly hoping to capitalize on the expected uptick in purchasing activity as new listings rose 2.8 per cent monthly. This combination caused the sales-to-new listings ratio to ease to 53.4 per cent, indicating a balanced housing market. While annual price growth could materialize by the end of 2024, housing gains are likely to be modest as ongoing homeownership barriers curb buyer appetite.

Rate cuts to only aid housing market slightly. While the exact timing of the first interest rate cut is unclear, the policy rate is expected to fall by 100 to 150 basis points over the second half of the year. This will likely stimulate purchasing activity as opportunistic buyers look to capitalize on falling variable rate mortgages. In addition, limited housing supply across the nation, decade-high population growth, resilient job creation and strong wage gains will ultimately put a floor under prices. However, with the overnight rate anticipated to remain elevated and bond yields holding firmer than expected, the price of a single-family home is likely to only see modest gains over the coming months.    

Commercial Real Estate Outlook

Housing affordability hitting rental market. Affordability concerns are spilling over to the multifamily market. While wage growth has sat at elevated levels since 2022, historic population gains and limited housing supply have caused rental inflation to far outpace that of income growth. Consequently, further housing supply is needed across the country. Despite this need and rental rates hitting new highs, current rent levels make penciling out development proformas challenging. Although Canadians have seen healthy wage gains over the past year, many households still do not earn enough to afford rental rates that can justify new development. Combined with heightened interest rates and construction costs, government intervention and subsidies are needed to make multifamily development feasible, which was recently highlighted in the 2024 federal budget. While these newly announced measures will benefit long-term supply, short-term challenges are likely to hold as it will take time for these new initiatives to be realized within the market.  

Multifamily performance to hold. Apartment demand is expected to remain robust over the coming years. Population and employment growth is expected to lead all G7 countries, and homeownership challenges are likely to persist amid out-of-reach prices. At the same time, supply will not keep pace with demand. While the pace of housing starts sat at a seasonally-adjusted annualized rate of 240,200 as of April and were up 5.2 per cent year-to-date, they are far behind the average annual pace of over 500,000 that is needed to achieve affordability by 2030. As a result, apartment rental supply will remain limited, maintaining it as a preferred investment option.  

* Through April; ** Rental inflation through March, wage growth through April
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Bank of Canada;
Canada Mortgage and Housing Corporation; Capital Economics; CoStar Group, Inc.; Statistics Canada