Canadian Housing Markets in Holding Pattern?

On Wednesday, February 15, the Canadian Real Estate Association (CREA) released its national housing statistics for the month of January 2023. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for members:

January’s housing stats contained quite a few headline grabbing numbers, but I’d argue things are actually a lot less dramatic than they look on the surface and are probably a lot more noise than signal.

Canadian home sales edged back down 3% between December 2022 and January 2023, taking back all of December’s small gain (and then some) and rejoined the mild downward trend we’ve seen since last summer.

So, the last month of 2022 was a false start to an eventual recovery. But I think in the fullness of time, the quiet January number may prove to be the bigger head fake.

Here’s why:

Sales started off 2023 at a 14-year low for the month of January, the lowest since the financial crisis. That said, January 2023 sales activity did not look anything like January 2009. It looked more like what we saw in the early 2010s, just a little lower.

The most important thing to know when trying to figure out what’s going on with housing demand is that new listings started off 2023 at a 22-year low, and you can’t buy what isn’t for sale.

Other lessons from the past

 2018 was the year of the stress test. A de facto 200 basis point increase in mortgage rates and three Bank of Canada rate hikes on top of that. It was a really weak year for sales and one of the only years ever to see the national average home price edge down on an annual basis.

Then we got into the winter of 2019, and it was still quiet but, the thing was, there were no listings. Sellers were still very much in control, and they were waiting strategically for the spring. The question at that time was, “are the buyers going to come back this year?”

Well, the weather warmed up, listings hit the market, and sure enough, activity took off.

I think we’re looking at a very similar situation right now. We saw a weak end to 2022 following 400 basis points of rate hikes last year and another 25 basis points in January. It’s all quiet on the sales and listings fronts for now in the dead of winter, but what about two, three, and four months from now when homes typically start to hit the market in big spring numbers?

Want more housing market analysis? Shaun Cathcart, CREA’s Senior Economist, joins us on the latest episode of REAL TIME to help us understand where Canada’s housing market has been, how it’s changed, and where it could be headed. Listen now.

We know the demographics are off the charts, both in terms of record population growth but also the middle-aging of, and associated household formation coming from, the huge Millennial and elder Gen-Z cohorts.

Moreover, the Bank of Canada is increasingly signaling rates are now at the top. That is a huge milestone as many prospective buyers have likely been holding off for fear of finding themselves with skyrocketing mortgage payments, as has happened to many mortgage holders over the last year.

Another potential tailwind for Canadian housing in 2023 is the pent-up demand from those who have been avoiding the intense market conditions of the last few years. This year will probably be a good window of opportunity for a slower and more relaxed home search for people who are less impacted by higher rates because they’re playing with more equity and less mortgage. People who don’t want to have to make a purchase decision in two days. People who don’t want to be up against multiple other offers. And people that want to be able to negotiate and write an offer with conditions.

History suggests the market could surprise on the high side later this year, as it did in 2019, but we’ll have to wait for the listings side of things first. Until then, we’re in a holding pattern.

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As our Director and Senior Economist, Housing Data and Market Analysis, Shaun Cathcart provides housing market intelligence to Boards, Associations, members, and real estate industry stakeholders. He spends much of his time analyzing and writing about Canadian housing trends. In his downtime, you can find him on his bike, on the volleyball court, and enjoying time with his family.

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