Canada Housing

Sales Activity Edges Back as Market Participants
Await Central Bank’s Decision

Housing market remained quiet in May. National home sales decreased by 0.6 per cent month-over-month in May, while new listings ticked up by 0.5 per cent. This contributed to a slight monthly drop in the average sale price of a single-family home. Many potential buyers stayed on the sidelines in anticipation of lower interest rates, while a rising number of sellers entered the market, hoping for renewed demand with speculation surrounding rate cuts. Consequently, the sales-to-new-listings ratio fell to 52.8, maintaining a balanced market that has become more favourable to buyers. On an annual basis, the average sale price of single-family homes fell by 2.2 per cent, driven by a decline in Ontario. This indicates that sales activity in regions with the greatest affordability challenges continued to be disproportionately impacted by elevated interest rates.

Lower rates pave the way for a more active housing market. Following the Bank of Canada’s rate cut in June and further policy easing suggested in the bank’s forward guidance, the ownership market is expected to see some demand return in the second half of 2024. However, price movements may be marginal as the BoC’s policy easing has likely initiated a new cycle of price discovery between buyers and sellers. Although lower rates will likely rekindle buyer interest, current mortgage rates remain at elevated levels, which could delay a material recovery in sale prices until late 2024. In the meantime, the recent rise in new listings and a significant increase in the supply of more affordable housing options such as condos may continue to put downward pressure on the sales-to-listing ratio, making the ownership market more advantageous to buyers in the short term.    

Commercial Real Estate Outlook

Multifamily sector receiving policy support. Since 2013, the apartment sector has increasingly captured developers’ interest. Affordability concerns in the housing market, coupled with some policy support and significant population growth following the global health crisis, have further accelerated the construction of purpose-built rental units. Within the past decade, the share of new multifamily housing rose from 13 per cent of all completions to 34 per cent, now becoming the most popular build in the housing market. With declining financing costs and federal funding directed toward rental apartment development, sustained growth in multifamily supply is anticipated in the foreseeable future. While short-term challenges will remain, this expansion could stabilize multifamily vacancy rates and help to address Canada’s housing shortage and homeownership challenges over the long term.

Sales set to rebound as buyers focus on growth markets. Similar to the anticipated recovery in the homeownership market, investment activity in the multifamily sector will likely also improve as financing conditions ease. Among all property types, apartment buildings will likely be one of the most sought-after assets due to strong fundamentals backed by demographic tailwinds. Investors may allocate more resources to high-potential markets, including Calgary and Edmonton, where population gains are being driven by robust economic growth, domestic in-migration and less impact from the recent change in immigration policy. Core markets, such as Vancouver and Toronto, are also expected to see continued growth, which will further drive investor confidence within the metros.  

* Trailing 12-month through May
Sources: Marcus & Millichap Research Services; Bank of Canada; Canada Mortgage and Housing Corporation; The Canadian Real Estate Association