Is Canada's housing slump coming to an end?

Residential transactions climb for the second straight month

Is Canada's housing slump coming to an end?

January witnessed an uptick in residential transactions across Canada's major markets for the second month in a row, signalling that the housing downturn initiated in spring 2022 might be levelling off.

Despite this increase, the overall housing sector remains subdued, with new listings falling short and further tightening the demand-supply balance based on the Royal Bank of Canada’s latest housing report. The lasting impact of the pandemic on housing affordability continues to exert pressure on property values in most areas.

Buyers have seen a glimmer of hope with the drop in fixed-rate mortgages since November, buoyed by the anticipation that the Bank of Canada might reduce rates further. Still, experts believe a full recovery is unlikely until the latter half of 2024 when interest rates are expected to decrease more substantially.

Early January data didn't show a surge in sellers. Instead, new listings were scant, hinting at a potential rise in demand-supply tightness. There's a looming risk that mortgage renewals could trigger a wave of distressed sales. Despite these factors, the market's overall tone is looking up slightly, with Calgary standing out as an exception where home prices continue to climb.

Read next: Which Canadian housing markets saw the biggest price increases last year?

Toronto's real estate market might be finding its footing after a quiet fall, with consecutive months of rising home resales, including a 9.6% month-over-month increase in January. However, stretched affordability could keep many potential buyers waiting on the sidelines for more favourable conditions. Prices in Toronto have been on a downward trend, but if the recent tightening in demand-supply conditions holds, this trend might soon stabilize.

Montreal's market began 2024 in much the same vein as it ended 2023: steady but subdued, with transactions and prices remaining stable but modest above their early 2023 lows. The local economic climate and labor tensions could be dampening buyer enthusiasm, with any significant boost from lower interest rates not expected until later in the year.

In Vancouver, both buyers and sellers showed increased activity in January, possibly motivated by the recent dip in mortgage rates. An estimated 15% rise in new listings offered more options to buyers, although demand-supply conditions slightly softened, keeping prices on a slight downward trend. Vancouver's challenging affordability may continue to impact prices in the near term.

On the other hand, Calgary stands out as Canada's housing hotspot, with sales in January significantly higher than pre-pandemic levels. The city's market is the tightest in the country, with home prices still rising, making it one of the few major markets with month-over-month price increases. With potential rate cuts on the horizon, Calgary's market is poised for further growth.

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