September 2023 Housing Market Report

Elevated interest rates persist in dampening the Canadian housing market's momentum, which had unexpectedly rebounded strongly in the spring. In August, for the second consecutive month, there was a decrease in home resales, with a 4.1% drop from July, and a more moderate increase in home prices. Previously tight supply and demand dynamics have continued to ease as the number of homes available for sale inched up, albeit slightly. Most local housing markets have now undergone a significant rebalancing. We anticipate that this cooling trend will persist into the upcoming fall season, despite the Bank of Canada's decision to halt its rate hike efforts.

Elevated interest rates persist in dampening the Canadian housing market's momentum, which had unexpectedly rebounded strongly in the spring.

Sales momentum is decelerating in most major housing markets

The most significant decline in home resales last month was observed in British Columbia, especially in the Fraser Valley (-12.1% month-over-month), Victoria (-10.8%), and Vancouver (-8.5%).

Ontario also displayed a softer market tone, with even its more affordable regions, like Sudbury and Windsor-Essex, reporting notable declines. The Greater Toronto Area saw a modest 1.0% decrease, while surrounding areas such as Hamilton-Burlington (-11%) and Kitchener-Waterloo (-7.7%) experienced more substantial drops.

In Quebec, sales activity contracted on a month-over-month basis across all Census Metropolitan Areas (CMAs) except for Trois-Rivières.

The Prairie and Maritime regions continued to see a rebound in their markets, with the exception of Halifax (-7.5% month-over-month) and Saskatoon (-0.2%). Calgary, in particular, remained one of Canada's hottest markets with a 4.0% increase in activity.

Demand-supply dynamics showed signs of relaxation in most markets

In August, the supply side of the equation exhibited a mixed picture. Approximately the same number of markets saw an uptick in new listings as those that witnessed a decrease. However, this did not prevent a general easing of demand-supply conditions.

The majority of markets in British Columbia, Ontario, and certain areas of Quebec and Atlantic Canada are now in a state of balance.

Prairie markets, on the other hand, continue to experience relatively tight conditions. Sellers in Calgary, in particular, wield substantial pricing leverage.

Home price growth reaches slowest pace in five months

Home price growth has decelerated to its slowest pace in five months due to more balanced market conditions, reducing the intensity of competition among buyers. In August, Canada's MLS Home Price Index increased by just 0.4% compared to July, which is less than a quarter of the average rate of 1.8% observed between April and June.

However, it's worth noting that prices have still risen above levels from a year ago. In August, the national MLS HPI was up by 0.4% compared to the same month in the previous year. Among the larger markets in the country, Halifax leads with a 9.5% year-over-year increase, followed by Calgary at +7.3% and Quebec City at +6.4%.

Anticipated Quieter Activity in the Second Half of the Year

We anticipate that the Canadian housing market will maintain a relatively subdued pace in the coming months. Elevated interest rates and the associated higher costs of homeownership are likely to remain a barrier for many potential first-time buyers. Additionally, the looming possibility of an economic downturn could erode market participants' confidence. These same factors may also put pressure on existing homeowners, potentially leading some of them to list their properties for sale. As a result, we expect a more balanced market, which should keep the rate of future price increases in check, and we cannot rule out the possibility of slight declines.

Adapted from RBC Economics