Is a Buyers Market coming soon?

Little change in the housing market this Spring could mean a potential Buyers Market

The Canadian real estate sector displayed minimal fluctuations in March 2024, with both home sales and prices maintaining a steady course. Transactions documented through Canadian MLS systems experienced a marginal uptick of 0.5 percent compared to the previous month, yet remained below the ten-year average.

Similarly, the MLS Home Price Index (HPI) demonstrated marginal movement, dipping by 0.3 percent month-over-month. Analysts suggest that the current landscape, characterized by elevated interest rates and speculation regarding potential rate adjustments, may be influencing market dynamics.

Canadian consumers appear financially strained, potentially signaling the emergence of a buyer's market. The stagnant market conditions likely indicate that affordability remains a critical issue, particularly with housing affordability reaching unprecedented levels. Until affordability is restored, substantial growth in the market is improbable.

Affordability hinges on the interplay of price, interest rates, and income. Bloomberg reports indicate that achieving pre-COVID affordability levels in Canada would necessitate a 33 percent decrease in prices, a 55 percent increasein incomes, or a 350 basis points reduction in interest rates. A combination of these factors is anticipated to drive market recovery.

Data suggests that buyers may respond favorably to an increase in new listings, potentially alleviating some demand pressure and paving the way for a buyer's market, wherein prices could undergo correction. The true impact of these developments will become clearer upon the release of April's data.

Transaction volumes in March 2023 witnessed a modest 1.7 percent increase compared to the previous month. However, this growth was subdued when contrasted with the preceding months, attributed in part to sluggish market conditions during the Easter weekend. Nonetheless, the persistent deviation of monthly home sales from their ten-year average underscores the enduring influence of affordability and economic factors on consumer behavior.

Price dynamics appeared relatively lackluster, with prices maintaining a lateral (slighly downward) trajectory during the Spring market of February and March which is a period typically marked by upward trends.

Notable price escalations were evident in the following regions:

Greater Moncton: +5 percent
Estrie, Quebec: +3.5 percent
Prince Edward Island: +2.7 percent
Sault Ste. Marie, Ontario: +2 percent
Chilliwack, British Columbia: +1.9 percent

Notable price declines were observed in the following locales:

Simcoe & District, Ontario: -2.3 percent
Mauricie, Quebec: -3 percent
Halifax: -1.7 percent
B.C.’s Interior region: -1.6 percent
Owen Sound, Ontario: -1.2 percent

CREA's 2024 forecast anticipates a resurgence toward the 10-year average sales volume growth trajectory by 2025. The forecast underscores the enduring influence of interest rates on Canadian housing markets through 2024 and 2025. Despite the subdued market activity following the Bank of Canada's rate hikes in 2023, prices in numerous markets remain below their peak levels observed in 2021 and 2022.

Anticipations hint at a potential rate cut in the latter half of 2024, with financial markets projecting approximately 50 basis points of reductions by year-end. However, most economists speculate that Canada may refrain from such actions until a corresponding move by the United States Federal Reserve, which may not materialize this year absent action at the next Federal Open Market Committee meeting.

According to CREA's data, a resurgence in new supply, sales, and listings indicates a potential market recovery. Approximately 492,083 residential properties are forecasted to exchange hands in 2024, marking a 10.5 percent surge from 2023. The national average home price is projected to ascend by 4.9 percent to $710,468 in 2024.

In 2025, national home sales are expected to surge by 7.8 percent to 530,494 units, accompanied by a projected 7 percent increase in the national average home price to $760,120.