The Canadian real estate market has continued its descent below the 10-year average for another month, with sales down three per cent from December to January. 

While these holiday months are typically the two slowest months of the year, the last two months have been exceptionally slow for home sales in Canada. 

Sustained period of low volume

When examining Chart A from CREA’s stats report, we can see that home sales have entered into a sustained period of low volume not seen since 2009 – the last time Canada saw a major recessionary period.

This period of time has proven tough for many in the real estate industry, with industry earnings suffering as a result of transaction volumes down 37.1 per cent from last year.

Fortunately, based on past cycles in Canadian real estate, large drops in volume are typically followed by a comparable rebound upward. These drops and rebounds can be examined in 2008, 2017, and 2023 on CREA’s monthly home sales chart:

Monthly home sales (Canadian Real Estate Association)

The correlation between price and volume becomes exceptionally clear when looking at how prices evolved during the same periods. 

CREA’s MLS Home Price Index (HPI) continued its decline by 1.9 per cent since last month, now down 12.6 per cent year-over-year. 

The actual national average home price is down 18.3 per cent from this time last year. This continued drop in price has broken last month’s record, which was the largest annual drop in the price since the global financial crisis. 

Based on research from Ben Rabidoux, founder at Edge Realty Analytics Ltd, the drop in price has now exceeded what we saw in the 1990s – Canada’s last major housing correction. 

Toronto and Vancouver

CREA makes note that much of this drop in price is skewed downward by Toronto and Vancouver area data. These more sophisticated markets did seem to behave in an almost forward-looking fashion in response to interest rate hikes – with steep declines in Q2 of 2022 paving the way for these record year-over-year declines. 

The forward-looking markets almost behaved as though they were trying to “price in” the entire cycle of rate hikes once the Bank of Canada began. CREA expects the next two months will post the largest year-over-year price declines since most markets peaked in February or March of 2022. 

The market seems hopeful that rate hikes are behind us, and the real estate industry is ripe with anecdotes of renewed energy and activity from buyers who were patiently waiting on the sidelines. 

Supply and demand

There seems to be growing pressure on 2023’s spring market to floor the price declines and begin the much-needed resurrection of volume, but increased interest rates seem to have stripped the market of urgency. 

New inventory continues to be tight, with just a 3.3 per cent increase in new listings month-over-month in January, and 4.3 months of inventory.

 This trickle of supply has kept the market away from a state of excess supply, which has aided in slowing further price declines in many markets. 

Daniel Foch

Daniel Foch is a real estate broker, working in the real estate industry for over 15 years with various notable organizations such as Interrent REIT, CBRE, and Hydro One. Daniel and his team have transacted over $250M in real estate across a variety of asset classes. During his academic career, Daniel was an active instructor, contributor and researcher in the University of Guelph’s Real Estate Faculty, founder of The University’s International URECC event, and was awarded for affordable housing innovation by CMHC & The University of Guelph during his tenure at the university.

Daniel is a regular contributor in the Canadian media as one of the most trusted, unbiased, and balanced sources of real estate insight. As a result, his real estate expertise has been featured in The Wall Street Journal, CBC, BNN Bloomberg, and The Globe and Mail, among others. Daniel has built a captive audience of over 100,000 real estate investors across multiple social media platforms by providing primary research and market analysis.