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Canada’s shifting real estate market

The shifting housing market is a hot topic of conversation, especially for agents with buyers waiting for a significant drop in home prices before making moves. 

So, will the broader market continue to transition to more favourable conditions for buyers?  

According to November data from CREA, 70 per cent of local markets in the country are currently in balanced market territory.

Shaun Cathcart, CREA’s Senior Economist, said the national market has just tipped back into the balanced space.

“It was a seller’s market. It was the most crazy seller’s market of all time just eight months ago. So it’s sort of tipped back into the balanced space but very much a close to a seller’s market you can be and still be balanced. On the tighter side for sure,” he said.

The real estate industry uses the months of supply data as a key metric in describing the state of a local housing market. Basically, the metric indicates how long it would take to sell all the inventory listed for sale in a market, given the current demand (sales).

Cathcart said the long-term average for months of inventory is about five months.

He explained that a seller’s market territory is about 3.6 months of supply and under, while a buyer’s market is about 6.6 months of supply and up.

At the end of November, there were 4.2 months of inventory on a national basis, according to data from CREA. 


Balanced market territory


Cathcart described a balanced market as one that is vibrant with plenty of demand and supply. 

“But it’s usually one or the other. It’s rare that we’re sort of in the middle. The only time where we were sort of in the middle was when demand was super strong, supply was constrained, but the (mortgage) stress test came in and put a boot on the throat of the market for a while in 2018-2019. That’s the only time it’s really been in that middle range when policy comes in to restrict it,” he said.

“When this battle against inflation is over, we’re going to be right back in the same situation we were in with way too much demand for housing and not enough supply. It’s been true the whole time. It’s getting slammed back again by (interest) rates right now, but the fundamental factors that underlie the housing market are the strongest they’ve ever been. 

“Some of the international immigration numbers coming out just in the last few quarters, it’s insane. People have to live somewhere. I’m not fearful. I’m not worried about the housing market.”


Supply “crisis”


Phil Soper, President and CEO of Royal LePage, said the intention is there from municipal, provincial and federal governments to help combat a housing supply “crisis” in the country.

“When you have more people looking for a home, more buyers in markets than people willing to sell a home, you have a seller’s market. The advantage is to sellers. More buyers chasing few products, and that pushes upward pressure on the product. More demand than supply,” said Soper.

“The opposite should be true now. We’re in a market slowdown, a correction, a market slump. So there should be more people trying to sell homes than there are buyers, but weirdly in this particular recession, it’s because that employment number has stayed so strong they actually kind of dropped in tandem. So the number of buyers and sellers in markets is roughly equal.

“And that’s why in a big market correction, a big slowdown in housing, we’re not seeing a big change in home prices. A little bit of softness but nothing like the market bears predicted . . . So right now, we’re strangely in a balanced market. 


Pent-up demand


“Unfortunately, when we come out of this unless the supply crisis is addressed right across the country, we’ll quickly move back into a seller’s market. The housing shortage in this country is just that big. We’re working on it, but it’s going to take time.”

Soper said he believes the pent-up demand that occurred in 2022, plus those transactions that never got completed in 2021 because people were outbid in bidding wars, are going to pile into 2023 as the market starts to normalize.

“And we’ll again be into a period where there will be unreasonable upward pressure on home prices, particularly in our busiest cities,” he said.