Canadian home listings surge as sales dip

Canada’s housing market posted a surge in the number of properties available for sale, one of the biggest monthly gains in listed inventory on record, as homebuyer demand waned amid persistently high interest rates.

The total number of properties on the market rose 6.5% in April from March, the second-fastest monthly gain ever, according to data released Wednesday from the Canadian Real Estate Association. That pushed the total stock of homes for sale to its highest level since before the pandemic, the data show.

The market loosened up with home sales falling 1.7% in April from a month earlier, even as the number of properties newly listed for sale rose 2.8%, the real estate board data show. Prices were mostly flat, with a measure of the benchmark cost for a home staying unchanged from the previous month at C$719,400 ($528,100).

The return of warmer weather typically heralds the busiest season for housing markets across Canada, but with borrowing costs still around their highest in 20 years and prices just slightly down from last year’s spring market, many buyers are staying on the sidelines. And many buyers and sellers are grappling with the prospect that any rate cuts by the Bank of Canada might occur later in the year than expected.

“Mortgage rates are still high, and it remains difficult for a lot of people to break into the market,” James Mabey, chair of the real estate association’s board, said in a statement. “For those who can, it’s the first spring market in some time where they can shop around, take their time and exercise some bargaining power.”

This shift has matched a change in expectations for interest-rate cuts. At the start of the year, traders were expecting the Bank of Canada to lower its policy rate to about 3.75% by the end of 2024. Now, they’re betting it will drop only to roughly 4.5%.

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Could rising rates cause a housing and mortgage crisis?

Homeowner renewing their mortgages should brace for increases in monthly payments due to steeper interest rates. the Bank of Canada said.

The central bank estimates that by 2026, median monthly payments for variable-rate mortgages could increase by more than 60%.

Rising interest rates haven't caused widespread mortgage defaults, which remain below 0.5% so far, according to the BoC’s annual Financial Stability Report.

However, the Bank warned of growing risks to financial stability as households and businesses grapple with higher debt servicing costs.

“If more Canadians lose their jobs, the unemployment rate goes up, all of a sudden that stress, that vulnerability is really at risk of crystallizing,” Governor Tiff Macklem said in a statement. “More households won’t be in a position to pay that mortgage, particularly given the larger reset. So, it is a vulnerability. And the point here is households and banks need to get ahead of that. We know what’s coming.”

Roughly half of outstanding mortgages have already renewed at higher rates since the central bank hiked rates in March 2022.  Homeowners weathered this initial wave due to income growth, savings, and reduced spending. However, the report notes that renters currently face greater financial stress.

The next phase of renewals could be much tougher. Many homeowners with mortgages up for renewal in the next two years purchased at the height of the pandemic when rates were at emergency lows.

While economists expect rate cuts to begin this summer, Macklem said rates will likely fall back slowly and will not return to pre-pandemic levels.

The most dramatic increases will hit homeowners with variable-rate mortgages with fixed payments.

The report projected that by 2026, the median monthly payment for this group could increase by over 60% compared to existing payments.  Even those with fixed-rate mortgages, typically less impacted by rate fluctuations, face potential payment increases exceeding 20% in 2026.

Despite the mortgage payment shocks ahead, the report had a more positive overall outlook than last year when financial markets were roiled by bank failures and pension fund turmoil.

However, the bank flagged rising risks in certain areas like overleveraged hedge funds and pension funds, potential corrections in overheated asset markets, and struggles in the office real estate sector, where vacancy rates are nearing 20% in Toronto.

The central bank said smaller banks are more exposed, with commercial real estate loans making up 20% of their portfolios versus 10% for large banks. Loan delinquencies are also higher at smaller banks geared towards riskier borrowers.

The entire banking sector remains well-capitalized to handle losses, according to the report, having built rainy-day funds, though asset managers like pension funds ramping up leverage in repo markets is an emerging concern that could amplify bond market volatility.

"Leverage is usually there to amplify profits, but it works the other way around, too. It amplifies losses, it amplifies volatility," said BoC senior deputy governor Carolyn Rogers.

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Canadian homebuyers stay cautious despite more choices

Sellers are returning to some of Canada's largest housing markets, but buyers seem hesitant to take advantage.

A new Royal Bank of Canada (RBC) housing report revealed an increase in new listings and inventories, with cities like Vancouver, Toronto and Montreal experiencing an influx of sellers.

“This could reflect a confluence of sellers that include many who took a pass at the fall market (when demand and prices dipped) in the hope of better outcomes this spring,” the report read. “Some of the sellers could be in distress in the face of high interest rates.”

Despite more homes available, buyers aren't rushing in. Home resales generally decreased between March and April, with Vancouver the only major market seeing a modest increase in activity.

Vancouver saw a 15% monthly surge in new listings, up 65% year over year. This is the highest level of active listings in the metro since September 2020.

While home resales rose 5% in April, most of the new inventory remained unsold. Vancouver home prices slowed slightly in April to 2.8% from 4.5% in March.

“High rates and poor affordability clearly continue to weigh heavily on buyers,” RBC said. “We expect such pressure to persist until several rate cuts have been implemented.”

The spring market is off to a slow start in Toronto, with home resales dropping for two consecutive months (-3.4%) in March and April even though new listings were up 5.9%. However, property values still managed to appreciate slightly, with the area's MLS HPI inching up 0.4% month-over-month in April.

In Montreal, the market rally lost momentum in April as home resales are estimated to have fallen 5% from March.

"April could just be another bump," the report suggested, noting the long road still ahead for resales to return to pre-pandemic levels, which remain about 30% higher.

High interest rates continue to deter potential buyers, although historically low inventories also constrain transaction volumes. Home prices in Montreal, particularly for single-detached homes, have ascended again after a soft patch in the fall.

Calgary continued to face tight supply conditions, with active listings near decades lows this year.

New listings have been consistently decreasing, with April marking the fifth consecutive month of declines. Despite some stagnation, Calgary's housing market remains vibrant, driven by substantial population growth and strong demand. The annual rate of price increase neared double digits (9.9% in April).

Home prices ticked up slightly in all major markets. For example, the MLS Home Price Index in Toronto rose for the third month in a row, although at a slower pace than before. 

RBC anticipates a stronger, more sustained recovery won't happen until interest rates fall, likely in the latter half of 2024.

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Prices fall, listings rise in Toronto housing market

Toronto’s traditional spring housing market kicked off in favor of buyers as prices fell and new listings rose from the same time last year.

The number of properties being put up for sale surged 47% from a year ago, according to a report Friday from the Toronto Regional Real Estate Board. The benchmark price for a home in Canada’s largest city fell 1% to C$1.128 million ($826,000) last month from April 2023, not seasonally adjusted.

The return of warmer weather typically heralds the busiest season for housing markets across Canada. But April’s rise in listings is a stark contrast to last year, when a dearth of homes for sale fueled a short-term price surge.

This year, the Bank of Canada’s determination to keep borrowing costs high until it’s clear that inflation has come under control is keeping homebuyers subdued for longer: 7,114 homes were sold in the Toronto region in April, down 5% compared with the same period a year earlier.

“While sales are expected to pick up, many would-be home buyers are likely waiting for the Bank of Canada to actually begin cutting its policy rate before purchasing a home,” Jennifer Pearce, president of the Toronto real estate board, said in a statement.

While buyers are facing a slightly less expensive market this spring compared with a year ago, prices are a little higher than they were in January. The benchmark price of a Toronto home was up 0.4% in April from March, according to seasonally adjusted data — the third straight monthly rise.

Expectations for interest-rate cuts have started to shift. At the start of the year, traders were expecting the Bank of Canada to lower its policy rate all the way to 3.75% by the end of 2024. Now they’re betting it will drop only to 4.5% by then.

The central bank’s overnight rate is currently 5%. Commercial bank prime lending rates are set 2.2 percentage points above that — so 7.2% currently.

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Canadian economy grows again

Canada’s real gross domestic product (GDP) ticked upwards in February, rising by 0.2% compared with the same time last year thanks in large part to continued growth in services-producing industries.

New data released by Statistics Canada on Tuesday showed that 12 of 20 sectors witnessed growth during the month, with  transportation and warehousing posting expansion of 1.4% and the public sector also recording a slight gain.

Mining, quarrying, and oil and gas extraction were up for the fourth time in five months, largely reversing a January contraction, although the utilities sector dipped thanks to milder performance in the electric power generation, transmission, and distribution industry.

For March, advance information showed that real GDP remained “essentially unchanged,” according to StatCan, with utilities, real estate, rental and leasing expected to increase while manufacturing and retail trade declines.

That would mean the economy expanded by 0.6% in 2024’s first quarter, subject to revision on May 31 – a trend that suggests continuing resilience in the face of high interest rates and an expected slowdown.

The news arrives amid growing speculation over the Bank of Canada’s likely timeline for rate cuts in 2024, with the central bank scheduled to meet for its next deliberations in just over a month (June 5).

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!