Inventory grows as housing markets adjust to high interest rates
New listings continued to climb in nearly all of Canada’s major real estate markets this September, except for Montreal, according to a recent report from Royal Bank of Canada (RBC).
This influx of inventory has helped relieve some of the pressure on supply, but buyer activity remains relatively sluggish. This dynamic left many markets in a state of pause as high interest rates weigh on affordability, said RBC economist Rachel Battaglia.
“Even with 75 basis points’ worth of interest rate cuts, we aren’t seeing buying activity pick up across the board just yet,” Battaglia wrote in a commentary. “Canada’s most expensive markets (Vancouver and Toronto) are still seeing modest fluctuations – keeping activity relatively stagnant since the spring. Easing supply-demand pressures are keeping prices in these markets on a downtrend too.”
In Toronto, buyers are taking a wait-and-see approach, anticipating more rate cuts or a bigger drop in home prices before jumping into the market. New listings, driven largely by an increase in condo completions, have alleviated some of the earlier supply constraints, but this hasn’t translated into a notable increase in sales activity.
Toronto’s resale activity saw a modest 3.3% increase from August to September, but this was overshadowed by the surge in new listings, which were three times higher than the number of homes sold. Year-over-year, prices in the Toronto market have declined for six consecutive months, down 4.6% in September.
“Given the amount that’s accumulated this year, it would still likely take some time to be taken up. This should keep supply-demand conditions in favour of buyers for a little while longer,” Battaglia added.
Montreal’s real estate market seemed to be turning a corner, though many prospective buyers stayed on the sidelines. Despite a 5.5% drop in resales in September, the decline in new listings was even steeper, which is helping stabilize the market.
“We think supply-demand conditions will remain balanced as more inventory is released from newly completed projects,” Battaglia explained. “Buying activity should also continue to increase in the months ahead as additional rate cuts from the Bank of Canada are announced.”
Vancouver’s housing market remains slow to recover from its cyclical low, despite a 4.9% seasonally adjusted rise in resales in September. The bump in sales follows two months of declines, but overall activity remains weak. Home sales have stayed below 27,000 for over a year, keeping transactions 16% lower than in September 2019.
Meanwhile, inventories continue to rise in Vancouver, putting downward pressure on prices. Home prices in the Greater Vancouver Area were down 1.8% year-over-year in September, and Battaglia expects this trend to continue in the near term.
“Affordability is still extremely stretched in the Vancouver market,” she said. “As such, potential buyers will likely need to see more substantial rate reductions before affordability improves enough to welcome new market entrants.”
Read next: Why are many homebuyers still hesitant about entering the housing market?
Calgary saw a 5.4% jump in new listings in September, providing some much-needed relief in a market that has faced tight supply for much of the year. Although the surge in listings has helped moderate price growth, demand in the city remains strong, driven by population growth and a relatively optimistic economic outlook.
Annual price growth in Calgary slowed in September, coming in at nearly half the rate recorded earlier in the year. However, the city remained one of the few markets where resale activity is still above pre-pandemic levels.
“Supply-demand conditions continue to favour sellers as inventories are still sitting around historically low levels. We think this should prevent prices from moderating much more in the months ahead,” said Battaglia.
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