Is Canadian real estate in recovery mode yet? Only time will tell, but this year is off to a decent start for those hoping that is the case.

Based on dollar volume (total value of all real estate sold), we just saw the third-strongest January on record. But, it’s still well behind the record-setting years of 2021 and 2022 — peaks we may never see again for many years:

Source: realist.ca, CREA

Recovery in sales but still under-average

The Canadian Real Estate Association (CREA) reports a recovery in home sales in early 2024, following a weaker second half of 2023. January saw a 3.7 per cent increase in sales, continuing from December’s 7.9 per cent rise.

Despite these gains, sales are still below the 10-year average by about 9 per cent. This is unsurprising as January sales are typically below the average, but they’re trending up pretty quickly toward it and could break the streak below the line this February.

Market growth from waiting first-time buyers

The market shows signs of tightening, with increases in competition among buyers being reported by professionals across the country. That being said, prices in rapidly recovering areas continue to trend lower based on CREA’s assessment, and this seems to be in line with what market anecdotes are telling us.

Much of the growth is coming from first-time buyers who were sidelined during the frenzied market of the last few years. It would stand to reason that we’re seeing an uptick in price in more affordable markets:

• Yukon: + 3 per cent
• Nova Scotia: + 4 per cent
• Alberta: + 5 per cent
• New Brunswick: + 5 per cent
• Prince Edward Island: + 6 per cent

Spring opportunities for sellers looking to upsize

However, prices are falling by 4 per cent in Ontario, and prices did not grow at all in British Columbia, where affordability is some of the worst in Canada.

Source: realist.ca, CREA

This could create a good opportunity in the spring market for sellers looking to upsize upon mortgage renewal for a few reasons:

1. The house they’re selling has clear excess demand from CMHC-insured first-time homebuyers.

2. Demand for larger products has been muted by interest rates, meaning there is often less competition in the higher price ranges.

3. They’ll be buying and selling in the same market, so their risk exposure to volatility or further upward or downward price movements is reduced by them selling to lock in prices. This means most upsizers feel they’re only risk-exposed to the difference in value between the asset they’re selling and the asset they’re buying.

4. If they’re facing a mortgage renewal, they’ll be absorbing the increased capital cost regardless of their existing mortgage, so their consumer psychology tells them they’re functionally only paying the increased capital cost on the difference mentioned above in value, as well.

This is generally how price-floor support and CMHC policy can push recovery through the market. As first-time home buyers purchase entry-level supply, existing owners sell and realize the excess demand in that market.

These non-owners are now faced with the decision between a rental market growing at record rates, per CMHC’s most recent report, or entering a volatile and scary housing market.

As we know from Bank of Canada statistics, close to half of all homebuyers are first-timers, which makes it clear why we’re seeing a volume resurrection in the lower end of the market.