House prices have eased as the national home sales declined by 1.9 per cent between August 2023 and September 2023, according to data from the Canadian Real Estate Association. This is now the third month of decrease, and a very atypical and alarming scenario given that sales almost always increase from August to September.

National house prices are falling based on both HPI and Average metrics: pic.twitter.com/sg32PNsyq7

— Daniel Foch (@daniel_foch) October 13, 2023

This shift in local market sales was relatively minimal, with declines in Greater Vancouver and Greater Toronto Area, although Edmonton, Montreal, and the Kitchener-Waterloo region experienced smaller increases than seen in Toronto and Vancouver. Despite the current trend of slowing sales and increasing new listings, the actual number of transactions in September 2023 was 1.9 per cent higher compared to the same time frame in 2022, which was an exceptionally slow September.    

National home sales volume trending down still – fell again from August to September. It is VERY rare for home sales to fall from August to September. pic.twitter.com/z8XDhFXu3w — Daniel Foch (@daniel_foch) October 13, 2023  

The resale housing markets have stabilized after a record-setting spring market for sales and prices earlier this year. With low housing inventory and uncertainty about the interest rates, the market is expected to remain slower than usual, particularly during the winter months, with a close eye on the Bank of Canada’s actions and the Canadian economy.

Stabilized markets could favour buyers

With new listings increasing by 6.3 percent on a month-over-month basis in September, there is a massive rebound from the 20-year low, as witnessed earlier in the year in March with a cumulative gain of about 35 per cent, but with the declining sales and increasing new listings, the national sales-to-new listings ratio eased to 51.4 per cent in comparison to August’s 55.7 percent and the peak of 67.8 per cent in April. I’m not surprised that it was the first time it dropped below the long-term average of 55.2 per cent since January.

This increase in supply, coupled with decreasing demand, will continue to shift the market further in favour of buyers.

There were 3.7 months of inventory recorded on a national basis by September 2023, which gives a slight improvement from August’s average of 3.5 months and a steady increase from its low of 3.1 months in June.

Despite the September dip, the year-over-year comparison of the HPI was up by 1.1 per cent with prices expected to rise in regions across Canada. The national average home price in September 2023 was $655,507, showing a 2.5 per cent increase from September 2022.

CREA lowers resale housing market forecast on “higher for longer” rates

The Canadian Real Estate Association (CREA) has released an atypical update on the real estate market for 2023 and 2024 — it is a little more gloomy than their prior forecasts. Much like RBC, Royal LePage, and a handful of others forecasting the housing market, the forecast has been adjusted to account for resurrecting inflation and a potential “higher-for-longer” interest rate scenario from the Bank of Canada.

After a record-setting spring market earlier this year during the Bank of Canada’s “rate pause” period, the market has since slumped. The summer market slowed down, as it typically does, and so we had to wait for fall market data to understand if the market had truly run out of steam. It appears that Canadian real estate has done just that, driven primarily by rate hikes by the Bank of Canada and the uncertainty surrounding future rate increases. The influx of new listings in the fall has not translated into increased sales, causing the national sales-to-new listings ratio to plummet from nearly 70 percent to 50 per cent in just five months. This has taken the market from a strong sellers’ market to balanced market territory. Should this trend continue, the market will be in a buyer’s market by the end of the year.

National sales-to-new listings ratio has fallen from nearly 70 per cent to 50 per cent in just five months.

This has taken the market from a strong sellers market to balanced market territory.

Should this trend continue, the national market will be in a buyer’s market by end… pic.twitter.com/Xs6aK8OIRW

— Daniel Foch (@daniel_foch) October 13, 2023

CREA’s forecast predicts a 9.8 per cent decline in residential property transactions for 2023, with Ontario and British Columbia accounting for most of this reduction. This likely occurs as a result of the credit-sensitivity of these markets, as they depend heavily on buyers using leverage to make purchases. The national average home price is expected to drop by 3.3 per cent annually to $680,686 in 2023. Provinces like Alberta, Quebec, New Brunswick, Nova Scotia, and Newfoundland and Labrador may experience modest price gains, but the overall outlook remains bearish.

For 2024, a modest rebound in home sales is projected, along with a 1.5 per cent increase in the national average home price to $690,916. However, this is still below pre-pandemic levels and implies a market returning to long-term growth patterns. Alberta is expected to outperform the rest of Canada in terms of price growth, while Ontario’s growth is forecasted to be minimal. Other provinces may see modest price growth in the range of 1 per cent to 2.5 per cent, but the overall tone remains cautious.

It’s like a cycle where the housing market seemingly has the most activity in the spring with the summer months providing a slower activity and then picking up in the fall, and then slowing down again in winter. But surprisingly, despite the rapid increase in the new listing since Labor’s day in September 2023, we haven’t seen any higher sales despite higher supply. This says a lot in terms of affordability across the nation.

As a result, the national sales-to-new listings ratio has fallen from nearly 70 per cent to 50 per cent in just five months, leading to a significant slowdown in price growth, particularly in Ontario. Given these weaker sales and pricing trends, along with anticipation of “higher for longer” interest rates, potentially, the Canadian housing market will face a downward spiral for the remainder of 2023 and into 2024.

What’s next?

The national average home price is forecasted to decrease by 3.3 per cent annually to $680,686 in 2023.

Ontario and British Columbia are the most expensive and, therefore, most credit-dependent provinces for real estate, so their sales contract significantly more quickly as interest rates (credit costs) increase. The BOC’s decision to resume the rate hiking cycle, along with GOC bond yields rising, triggered the revision and downward trajectory. On the other hand, some provinces, including Alberta, Quebec, New Brunswick, Nova Scotia, and Newfoundland and Labrador, are expected to see modest average price gains in 2023, insulated by their solid affordability on a price-to-income basis when compared against less affordable markets like Ontario and BC.

Looking ahead to 2024, national home sales are forecasted to rebound by 9 per cent to 490,257 units as interest rates trend down, bringing the market closer to long-term trends.

The national average home price is expected to increase by 1.5 per cent from 2023 to 2024, reaching $690,916 – an optimistic scenario against the backdrop of a recession, but still below the rate of inflation, so a loss for Canadian homeowners in real (inflation-adjusted) terms.

This year would mark the fourth consecutive year with the annual national average price within the $680,000-$700,000 range, with stability seen in the past, including from 2016-2019 and in the 1990s.

In 2024, Alberta is expected to continue to outperform the rest of Canada with a forecasted price gain of 4.8 per cent compared to 2023, while Ontario is likely going to face barely any growth as they would have 0.2 percent while the rest of the provinces will experience price growths of 1 per cent to 2.5 per cent in 2024. This seems to be in line with interprovincial migration trends acknowledged by RBC’s recent reports, as Ontarians continue to leave for more affordable markets – especially Alberta and Nova Scotia.