It has been more than a year since the Bank of Canada (BoC) kicked off its tightening cycle, raising interest rates to their highest levels since the global financial crisis and trimming its enormous pandemic-era balance sheet. What has changed? The most notable development was the considerable correction for the Canadian real estate market, with sales activity slowing and prices coming down. But is this the correction? This is the debate a wide range of market analysts are having today. However, industry observers note that the results from the typically busy spring buying season should offer insight into what the rest of the national housing sector could look like for the remainder of 2023. For now, the latest housing numbers might answer the question: is the housing market turning around?

Let’s take a deeper dive into the latest Canadian Real Estate Association (CREA) data.

Is the Housing Market Turning Around?

In June, residential property sales climbed by 1.5 per cent month-over-month in June and advanced 4.7 per cent from the same time a year ago. Association data highlight that gains were led by the British Columbia and Alberta real estate markets, while there were fewer sales in the Greater Toronto Area.

The MLS® Home Price Index (HPI) rose two percent on a monthly basis but slumped 4.5 per cent year-over-year. The average home price increased at an annualized basis of 6.7 per cent, topping $709,000.

In addition, when the Toronto and Vancouver housing markets are removed from the equation, the national average price comes in at around $579,000.

So, what is driving the latest rebound? Three things:

  • Interest rate hikes are nearing their end.
  • Demand is outpacing supply.
  • Home prices might have bottomed.

“With sales levelling off near historically average levels and new listings finally starting to play catch up, housing markets appear to be settling down,” said Shaun Cathcart, CREA’s Senior Economist in a statement. “History suggests the price side of things will respond to this with only a slight lag. Add to that the recent Bank of Canada rate hikes, and we can probably expect price growth to moderate in the months ahead, likely still with some degree of upward pressure, but less than in the last three months.”

Here are some of the primary supply metrics, including new housing construction activity, that the housing sector is looking at:

  • New residential listings: +5.9 per cent month-over-month, and they are inching closer to the summertime average.
  • Months of Inventory: 3.1, below the long-term average of five months.
  • Housing Starts: -3.6 per cent year-over-year in June
  • Sales to New Listings: 63.6 per cent (sales gains outpacing new listings), down from 66.4 per cent in May.

What the Experts Are Saying

Research notes from bank economists pretty much share the same opinion: the Canadian real estate market is poised to climb higher.

Robert Kavcic, a senior economist at BMO, wrote in a note that after the central bank signalled that it was done with its rate hikes, sales volume and prices started to firm, particularly in Toronto.

“Home prices in Toronto (and various other parts of the country) are finding a floor, not coincidentally a process that started almost the moment the BoC told Canadians it is done raising rates,” said Kavcic. “The nature of our mortgage market has limited any forced selling (i.e., even for those with variable-rate mortgages); the job market is still rock solid; and some would-be sellers could simply be holding out for better market conditions.”

TD Economist Rishi Sondhi believes the second half of 2023 will see stronger average home price and sales growth, citing the latest financial market turmoil sending interest rates lower and possibly decreasing even further heading into 2023.

“Our current forecast anticipates that the Bank of Canada is finished hiking [its overnight lending rate], although we acknowledge that there’s perhaps more uncertainty on that given the recent bout of financial market volatility,” he wrote. “Other factors contributing to our view that prices will bottom in the first half of the year and improve in the second half include robust population growth and the notion that sales have fallen short of the levels we would typically see when scaled to other metrics, like income levels.”

In a new report, Robert Hogue, an assistant chief economist at RBC Economics, stated that early spring data suggest “local markets turned a corner” this past spring.

“In most cases, activity ramped up significantly (from depressed levels in March), and prices ticked higher,” Hogue wrote in a note, adding that price gains were the sharpest in Toronto, Vancouver, Calgary and Montreal.

“While still beset by a sharp loss of affordability in the last couple of years, buyers appear more confident to house hunt now that the Bank of Canada has paused its aggressive rate hike campaign (for good, we believe).”

Time to Buy?

The conventional five-year mortgage lending rate was 5.85 per cent in June, the highest since January 2023. Canadian consumer confidence is on the rise. Housing optimism is back in the Canadian real estate market. While Statistics Canada notes that pandemic-era savings have been exhausted, the labour market remains strong, and the credit crunch south of the border does not appear to have impacted the nation’s banking system too much.

Does this all mean that now is the time to buy? If the buyers have returned with full force, the bank economists might be correct: the housing market has turned a corner.

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