Slow Sales in Canada’s Housing Market: A Boon for Affordability and Potential Rate Cuts, Says BMO
In what seems to be a silver lining amidst a clouded Canadian housing market, the recent drop in the number of houses sold combined with an increase in listings has fostered conditions that could improve housing affordability and might prompt a Bank of Canada interest rate cut. According to an analysis by BMO’s chief economist, this calm in the housing market is a positive sign for future homeowners and the overall economy.
The latest data from the Canadian Real Estate Association (CREA) reveals a mixed bag of developments in the national housing scene. New listings saw a modest increase of 2.8 percent from March to April. However, this was contrasted by a slight 1.7 percent decrease in seasonally adjusted sales over the same period, leading to a 6.5 percent rise in total home listings. This balance between supply and demand is playing a crucial role in stabilizing prices, much to the benefit of potential buyers.
Diving deeper into the specifics, most of Canada’s major cities have seen a tangible cooling off. Notably, Montreal and Toronto experienced a 3.4 percent drop in sales month-over-month, while Calgary, Ottawa, and Halifax saw declines around the six percent mark. This reduced activity in high-demand areas is one of the primary factors behind the 1.8 percent decline in housing prices compared with April of the previous year. The diminished enthusiasm among buyers, as evidenced by these numbers, is instrumental in keeping housing prices in check – an essential factor considering the existing affordability crisis.
From the standpoint of interest rates, this equilibrium in the housing market might just be what the Bank of Canada needs to consider a cut. BMO’s analysis suggests that the current stable prices and the increase in property listings could ease concerns over a possible surge in prices in response to lower interest rates. Thus, there’s a slightly improved likelihood of rate reductions in the near future, which could further facilitate easier access to housing.
However, it’s not all good news on the horizon. A significant obstacle remains in the path towards improved housing affordability: the slow pace of new constructions. Current estimates suggest that housing starts for this year may not even reach the figures from last year, which were themselves only a fraction of what’s needed according to the 2024 federal budget targets. Adding to the complexity is the nature of these housing starts, predominantly focused on multi-unit buildings that inherently take longer to complete.
This situation indicates that relief for the strained affordability within the Canadian housing market may not be immediate. The supply of new homes, especially those that can be rapidly integrated into the market, is lagging. As the economy waits on these developments, the buyers, sellers, and policymakers alike will need to navigate the waters of the current market dynamics carefully.
In summary, the state of the housing market in Canada is presenting a unique set of challenges and opportunities. The recent cooling off provides a critical moment for potential buyers and offers a window for policymakers to address some of the longstanding issues of affordability and access. However, without a significant boost in new home construction, these improvements may be temporary at best, highlighting the need for targeted actions to secure a more stable and accessible housing future for all Canadians.
