Canada’s local real estate markets appear to be heading in different directions compared to one another.
In a recent RBC Economics Focus on Canada Housing piece, RBC’s assistant chief economist, Robert Hogue, stated that local real estate boards recorded diverse results for March. Cities like Calgary, Edmonton and Ottawa recorded strong monthly activity, while other regions such as Montreal and Toronto appeared to moderate.
“The picture is becoming more complex for Canada’s housing market,” said Hogue. “Local real estate boards reported varying results in March that may signal a break from the uncharacteristically synchronized trends seen during the pandemic.”
While extremely low home inventories and rising prices continue to be the norm, Hogue pointed out that there are signals that the tight demand-supply conditions are easing in some cities, setting the stage for further rebalancing in other markets in the near future.
Last month, the Bank of Canada upped interest rates by 0.25 per cent, the first increase since 2018. However, Hogue stated that this had little effect on cooling down the market, and may have rather fueled homebuyer demand as they moved up their purchasing decisions in order to secure a lower interest rate. The story will likely change with future rate hikes. RBC says that it expects the BoC to increase the policy rate by an additional 150 basis points by the end of the year.
“Activity brought forward since the fall has exhausted some of the future demand, but more importantly materially higher borrowing costs will make it harder for buyers to enter the market,” said Hogue.
Higher prices, lower inventories push some buyers to the side
Spring activity got off to a quieter start in some local markets during March.
In Toronto, home resales fell 30 per cent from March 2021, and off an estimated 16 per cent from February on a seasonally-adjusted basis. The composite MLS HPI jumped 2.7 per cent from February, which is a downward trend from the average 4.4 per cent increase recorded during the last five months. Although property prices will continue to climb, Hogue anticipates that the pace of growth will moderate, especially if affordability worsens.
“In fact, we think a peak may soon form,” said Hogue. “Clearly the $1.38 million price tag for a typical home is a stretch for a growing number of buyers.”
In Montreal, moderation trends continued to play out as resales dropped four per cent from February on a seasonally-adjusted basis, marking the fifth consecutive month of declines. Low inventories and rising ownership costs are likely the culprit behind the fading enthusiasm among buyers, which may also be reflected in the slower pace of median property price growth in recent months.
Calgary, Vancouver markets report hotter March results
Contrary to Montreal and Toronto, some local markets had a roaring March.
Home resales in Calgary were incredibly strong last month after reaching an all-time high in February. Even as new listings rose 24 per cent from March 2021, it wasn’t enough to get pace with buyer demand, pushing home prices even higher as the composite MLS HPI grew four per cent monthly.
“With the provincial economy now roaring, in-migration rapidly gathering steam and affordability comparing well relative to other major markets, we expect housing demand to stay solid in the period ahead,” said Hogue. “This is poised to keep prices on a steep upward trajectory.”
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A province over, buyers “haven’t quit yet,” in Vancouver as resales grew four per cent from February to March on a seasonally-adjusted basis. The MLS HPI benchmark was pushed up 3.6 per cent from February and 20.7 per cent year-over-year to a record $1.36 million.
“Odds are they’ll rise further in the near term. Sellers are still comfortably in the driver’s seat while inventories remain scarce,” said Hogue. “The drop in new listings tightened demand-supply conditions even more in March. Nonetheless, we expect activity to cool later this year.”
The RBC economist added that homebuyers will find it more difficult to cope with growing affordability constraints from soaring prices and rising interest rates, which will help to rebalance the Vancouver market and push purchasers towards less expensive options like condos and homes outside the urban core.
