Further Canadian Home Price Declines Expected In Early 2024

Houses for sale in Ottawa

Canada’s housing market downturn worsened in November, as the accumulated weight of interest rate hikes weighed on buyers and sellers alike.

According to the latest data from the Canadian Real Estate Association (CREA), sales slipped 0.9% month over month in November, while the MLS Home Price Index (HPI) fell 1.1%.

Sales have now fallen nearly 13% since June — when the Bank of Canada resumed interest rate hikes — almost entirely reversing the springtime rebound. Prices have been on the decline for three consecutive months, and November’s drop was the largest in nearly a year.

On a local level, the MLS HPI fell 1.7% on a monthly basis in Ontario, 2% in Nova Scotia — the first decline since March — 0.9% in Manitoba, and 0.4% in British Columbia. Meanwhile, previous price gains have plateaued in Quebec and New Brunswick.

Most major markets are “now in correction mode,” noted RBC’s Robert Hogue, Assistant Chief Economist, and Rachel Battaglia, Economist. High interest rates will continue to dampen demand in the months ahead, which should spur further price declines in the new year.

Even in Calgary, where prices rose 1.2% on a monthly basis in November, it’s “only a matter of time” before softening sentiments rein in gains, they said.

The expectation of further price declines was shared by Robert Kavcic, Senior Economist and Director of Economics at BMO, and Marc Desormeaux, Principal Economist at Desjardins, the latter of whom noted that conditions in major markets continue to shift in favour buyers.

However, as Farah Omran, Senior Economist at Scotiabank, noted, many prospective purchasers are keeping their eyes on 2024 and the interest rate cuts they anticipate the new year will bring. As such, any price declines that do materialize will not be long-lived.

“The story of Canada’s housing market over the past few months has been one of caution and unaffordability,” Omran said. “Caution as uncertainty looms and potential buyers await more clarity on the direction of the economy and house prices. Unaffordability as high rates make it impossible for some buyers to qualify for a mortgage at today’s elevated home prices.”

It will be “tricky,” she added, if the perceived end of the hiking cycle leads to resurgence of activity, as occurred this past spring.

Despite the cautionary tale that was 2023, the economists maintained their belief that the Bank of Canada will begin cutting interest rates in 2024.

“It’s clear that the housing market and the broader Canadian economy are weakening under the weight of high interest rates, and significant progress has been made in reducing inflation,” said Desormeaux. “We think the central bank is done hiking, and will begin cutting by the middle of next year.”

Kavcic echoed the sentiment, and noted that while affordability is currently at its worst level since the 1980s, it should improve somewhat as falling prices coincide with eventual rate cuts. Kavcic expects said cuts could total 100 basis points in the second half of 2024.

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