Buyers are in no rush as inventory grows, but affordability remains an issue
Canada’s housing market continues to tread water, showing only modest improvements in August, according to a report by the Canadian Real Estate Association (CREA).
CREA released its latest national home sales report, which showed a 1.3% month-over-month uptick in resales in August. Actual (not seasonally adjusted) monthly activity came in 2.1%, below August 2023.
Despite small signs of growth, industry experts said the market remained mostly stagnant, with buyers hesitant to act amid rising inventories and stabilizing prices.
“Despite some fledgling signs of life to kick off the long-awaited monetary policy easing cycle, Canadian housing market activity still looks to be stuck in the same holding pattern it’s been in all year,” CREA senior economist Shaun Cathcart said in the report.
“That said, with ever more friendly interest rates now all but guaranteed later this year and into 2025, it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well-behaved in most of the country.”
Buyers feel less pressure
As inventories rise, buyers are feeling less urgency to act quickly, a shift from the frantic pace of previous years. According to RBC assistant chief economist Robert Hogue, the number of homes available on the market is now equivalent to 4.1 months of sales – more than double the cyclical lows seen in 2021.
This gives buyers more time to consider their options and negotiate, which has eased the pressure many felt to rush into deals at inflated prices.
“There are more options for them to choose from,” Hogue said in a statement. “More balanced supply and demand conditions also give them a stronger hand in negotiating prices, contributing to stabilizing property values.”
The national composite MLS Home Price Index remained unchanged between July and August, holding steady at $717,000, down 3.9% from last year.
“Stable prices—or the possibility of declines in some markets—further lessens any urgency for some potential buyers to jump in,” added Hogue. “The supply side will continue to be in focus in the meantime. The rise in inventories to date has generally been a positive development, easing what were previously severe shortages in several markets.”
Hogue noted that the housing market may remain subdued for the near future, but he expects activity to gradually pick up as the Bank of Canada continues cutting interest rates in the coming months. However, a significant surge in activity may not happen until the spring.
Still hard to qualify
While interest rates have come down slightly, buyers in high-priced markets like Toronto and Vancouver are still facing significant challenges in qualifying for larger mortgages.
Clay Jarvis, a spokesperson for NerdWallet Canada, pointed out that home sales in cities with average prices over $600,000 have dropped year over year, reflecting buyers’ difficulties in securing the financing needed to buy homes in these regions.
"That tells me Canadians in pricier markets are having trouble qualifying for larger mortgages with rates and home prices at their current levels,” he said. “Cities like Toronto, Vancouver or Calgary will all likely see further sales decreases, which will put a damper on national real estate activity this fall."
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Jarvis added that while fixed mortgage rates are slightly lower than they’ve been in recent months, many buyers are waiting for further rate cuts from the Bank of Canada before making a move.
Jarvis suggested that buyers might want to get pre-approved for a mortgage now, as variable mortgage rates could fall with future Bank of Canada rate cuts, though it may take several more reductions for them to become cheaper than today’s fixed rates.
"Three- and five-year fixed rates are cheaper than they’ve been in a while and could sink even closer to four percent,” he said. “Lenders are hungry for business after a dreadful first eight months of the year, so buyers might want to take advantage of that desperation and get pre-approved before the market wakes up."
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