The Bank of Canada has cut the interest rate in June and July, with an overnight interest rate standing at 4.5% today.
It is time for us to do an update across 5 major housing markets in Canada.
Vancouver, Calgary, Edmonton, Toronto and Montreal.
Which market is struggling the most?
Do seller’s markets still exist in any city?
Let’s dive right in.
Let me share the major market highlights from the latest RBC report.
#1 Market Activity
We are going to look at 2 things in this chart.
The first thing is the number of resale transactions in July this year versus last year.
The second thing is a comparison on the number of new listings that come onto the market for sale.
In Vancouver, sales dropped 5% year over year, while new listings increased by 20%.
Calgary, 10% drop in sales, 11% increase in new listings.
Edmonton, a huge 27% increase in sales, 13% increase in new listings.
Toronto, a slight 3% increase in sales, 19% increase in new listings.
Montreal, 12% increase in sales, 14% increase in new listings.
#2 Supply and Demand Conditions
One way to understand supply and demand is by looking at the sales to new listings ratio.
Let’s say 10 new listings come onto the market and 5 of them get sold.
Then we have a ratio of 0.5 and that’s a pretty balanced market.
If 10 new listings come up and less than 4 of them are sold, then we’re in a buyer’s market.
If more than 6 out of 10 are sold, we are in a seller’s market.
In Vancouver, the ratio is 0.44, meaning if 10 new listings come onto the market, around 4 of them would get sold.
The market is more or less in equilibrium.
Calgary is still hot. It remains in the seller’s market with a ratio of 0.67.
Edmonton as well, it is still in a strong seller’s market.
Toronto has entered the buyer’s market territory.
If 10 new listings come onto the market, only less than 4 of them would be sold.
Montreal is still in a market that favours the sellers.
Toronto is struggling the most because it has a specific problem that other cities don’t have.
A record number of condo completions in 2024 and many investor sellers are trying to offload due to high interest rates.
With the sales to new listings ratio, it is only a reflection of how many new listings in the month get sold.
It doesn’t tell you anything about listings that didn’t get sold in the previous months and are now piling up.
So we need to take a look at:
#3 Inventories
This is a reflection of the number of available units on the market, doesn’t matter whether it is new or it’s been sitting there for months.
Let’s take a look at this chart that shows the percentage change in active listings last month compared to July 2023.
In Vancouver, active listings grew almost 40%.
Calgary got 19% more listings.
Edmonton actually saw a 15% decrease in active listings.
This explains why Edmonton is in the strongest seller’s market because it actually saw a decrease in supply.
In Toronto, inventories jumped 55% compared to last year.
Again, this is mainly due to the struggle in the condo market.
Montreal saw a 22% increase in active listings.
Most of the Canadian markets saw an increase in inventories this year because of a slowdown in demand.
Buyers are more hesitant due to high interest rates and economic uncertainties.
#4 Home Prices
Let’s take a look at the percentage change in the MLS home price index this June and July compared to last year.
In Vancouver, the home price index was slightly up in June year over year.
But when we got to July, it was almost 1% down.
Calgary and Edmonton saw over 7% price increase even with all the rate hikes.
Toronto, 5% decrease.
Montreal, 4.7% increase.
Going from June to July, you can see that there were still some downward pressures on the price.
This tells us that the rate cuts so far don’t really have much effect on the market.
RBC concluded the report with this headline:
“Canada’s housing markets look for deeper rate cuts to ramp up activity.”
The next interest rate announcement by the Bank of Canada is scheduled for September 6.
The July job report showed trends that are consistent with a cooling labour market, which gives an OK for the Bank of Canada to continue with the rate cuts.
The big 5 banks are generally predicting further rate cuts in the near future.
TD bank is leading the way to revise their interest rate forecast, now predicting 3 more rate cuts to bring the overnight interest rate down to 3.75% by the end of this year.
And eventually down to 2.5% by the end of 2025, a level last seen in the fall of 2022.
Rate hikes typically happen gradually because central banks aim to control inflation without triggering a recession.
So they need to do it slowly and assess the economy’s response at each step.
On the other hand, rate cuts often occur rapidly to quickly stimulate the economy during downtowns or financial crises.
A quick boost is needed to prevent deeper economic troubles.
Let’s see what the Bank of Canada decides to do in about 3 weeks.
There are still a lot of uncertainties in the market and things are changing so quickly.
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