Cooling home sales in recent months have changed the dynamic in markets across the country.
Gone are the bidding wars previously seen in many communities, as higher interest rates cause buyers to take a step back and housing inventories build.
Bank of Canada rate hikes may have ended, but their effects have not, says Desjardins principal economist Marc Desormeaux in his housing outlook.
Overheated housing markets like Toronto and Vancouver were hit first, but now the weakness is spreading throughout the country.
“Listings have also climbed nearly across the board in a sign that homeowners may be struggling with higher mortgage rates,” said Desormeaux.
“So while supply–demand balances are still tighter in Alberta than in Ontario and BC, all major markets are loosening.”
A recent study by online realtor Zoocasa aimed to find out by how much. The study analyzes market competition across 23 cities in Canada to determine their sales-to-new-listings ratios (SNLR). A ratio under 40 per cent where new listings overtake sales suggests a buyer’s market, between 40 and 60 per cent is a balanced market and over 60 per cent, where demand exceeds supply, is a seller’s market.
When Zoocasa did this same analysis last spring, there were no buyer’s markets in Canada, but that has changed.
Greater Toronto, Niagara Region, Hamilton-Burlington and Victoria have since flipped to buyer’s markets. The SNLR is lowest in Toronto and Niagara Region at 32 per cent, suggesting that buyers in these regions have more bargaining power.
“Niagara Region also boasts a relatively lower average home price for Ontario at $639,900, giving buyers an opportunity to snatch up an affordable home without facing bidding wars,” said Zoocasa’s Mackenzie Scibetta.
Eight of the markets Zoocasa analyzed are now balanced, but some are close to the edge. London and St Thomas in Ontario have an SNLR of 40 per cent, right on the line between balanced and buyer’s markets. Fraser Valley and Ottawa are also close with SNLRs of 41 per cent and 43 per cent, respectively. Greater Vancouver is at 44 per cent.
“With many of Ontario’s most in-demand markets favouring buyers or currently in a balanced state, sideline buyers who have been apprehensive about entering the market may find that now is actually the right time,” said Scibetta. “Less competition and more inventory often lead to greater negotiating power.”
It’s another story out west, where competition is still running hot. The most competitive market in Canada, according to the study, is Regina, where the SNLR is 80 per cent. That’s up from last year’s SNLR of 73 per cent.
Alberta’s robust economy boosted by the oil and gas industry and its cheaper housing have been a big draw for young and new Canadians in recent years.
In Regina, the average home price in October was $308,500 – compared to the national average of $731,100, said the study.
Calgary also has one of the highest SNLRs in the country at 79 per cent, but that is down from 84 per cent last year, suggesting some of the heat is seeping out of this market. Unlike other major centres in the country, Calgary home prices have continued to climb, with the average hitting $555,400 in October, a record high.
Most of the markets Zoocasa studied are less competitive than they were a year ago. Only two, Saguenay CMA and Edmonton, have moved from a balanced market to a seller’s market this year.
Looking ahead, economists say to expect more of the same as higher borrowing costs continue to take a toll.
The Bank of Canada’s pause is not expected to spark the rally it did last spring, and the economic downturn forecast for 2024 will further dampen activity, said Desjardins’ Desormeaux.
But while the outlook for the spring season is downbeat, economists expect that as the Bank begins to cut rates and the economy bounces back later in the year, sales and prices will pick up again.
Was this newsletter forwarded to you? Sign up here to get it delivered to your inbox.
Rents have shot up more than 8 per cent in the past 12 months at the fastest pace since 1983 and 7 percentage points faster than the average annual increase in the 20 years before COVID, says BMO chief economist Douglas Porter.
The gains have been so steep they have now outstripped growth in personal income, he said. Disposable income per person has risen at a pace of 3.9 per cent annualized over the past five years — slightly higher than the average overall inflation for that period. But the recent spike in rents has left income in the dust.
“This is the first time in 60 years of records that income growth has trailed behind rents — and it’s not even close,” said Porter.
- Ron Morrow, executive director, supervision, Bank of Canada, speaks at Central 1’s Momentum 2023 Summit
- Today’s Data: U.S. S&P CoreLogic Case-Shiller Home Price Index, U.S. FHFA House Price Index, U.S. Conference Board Consumer Confidence
- Earnings: Bank of Nova Scotia
Get all of today’s top breaking stories as they happen with the Financial Post’s live news blog, highlighting the business headlines you need to know at a glance.
Many retailers are offering deep discounts to entice shoppers who have spent less than anticipated this past year, but that doesn’t mean you should blow your budget on them. Debt counsellor Sandra Fry has a holiday spending plan that will keep everyone happy even when money is tight.
Housing market faces biggest test since 1990s recession
In Canada’s housing market, it matters who your parents are
Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at email@example.com, or hit reply to send us a note.
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.