By Murtaza Haider and Stephen Moranis

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Waiting for warmth: Housing sales slump as spring blooms Back to video

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Like the famous cherry blossom trees in Toronto’s High Park, the Canadian housing market tends to bloom in the spring, reaching its peak in late April and early May. This year, however, while the cherry blossoms bloomed on schedule, the housing market remained sluggish, awaiting the warmth of an economic recovery. An anticipated interest rate cut in June could potentially provide the boost it needs.

The latest data released by the Canadian Real Estate Association (CREA) revealed that sales in April were 1.7 per cent lower than the previous month. In fact, housing sales have been lower than the 10-year monthly moving average since the Bank of Canada initiated rate hikes in early 2022.

The decline in sales has coincided with a surprising rise in inventory. CREA reported an almost three per cent month-over-month increase in new listings across Canada, but the national average belies the major swings in individual markets, particularly Toronto, Canada’s largest, where there were 47.2 per cent more listings in April than in the same month last year.

With a record number of properties listed for sale across the country — the most since the onset of the COVID-19 pandemic — and slowing sales, buyers now find themselves in a favourable position. This market imbalance empowers buyers to negotiate more effectively, while forcing sellers to temper their expectations.

A longer-term view of the Canadian markets reveals a promising trend. Compared to April 2023, sales last month were up by 10.1 per cent. Housing transactions have maintained an upward trajectory since early 2023 despite some fluctuations along the way. This suggests a robust recovery is possible if interest rates remain supportive through the summer.

And what about prices? Instead of comparing average prices over time, we rely on CREA’s Home Price Index Benchmark Price. This quality-adjusted estimate accounts for changes in the structural types and sizes of homes sold over time. In April, the benchmark price for Canada remained flat month-over-month and declined by 0.6 per cent compared to the previous year.

Most real estate markets in the Maritimes demonstrated strength, with noticeable price increases. In Moncton, prices were up by 12.2 per cent year over year, and Halifax saw a 4.3 per cent increase. In Quebec, benchmark prices rose by 3.3 per cent in Montreal and 7.2 per cent in Quebec City. Housing markets in the Prairies and Rockies have also shown price recovery. Benchmark prices increased by nearly 10 per cent in Calgary, while Edmonton experienced a 5.6 per cent rise.

The housing market in Greater Toronto continues to show signs of weakness, with April prices down slightly from the previous year. Like Vancouver, where prices were up by 2.7 per cent year over year, Toronto has experienced huge price swings in recent years, rising sharply at the start of the pandemic and then declining in 2022 as interest rates started to climb. Toronto’s relatively high prices mean an upward trend is more contingent on a reduction in mortgage rates.

Housing markets are differentiated by location and product type, with significant variations even within local markets. The regional housing market in Greater Toronto illustrates these nuanced outcomes. This market is divided between the City of Toronto, often referred to by its area code 416, and the surrounding suburban housing markets, known as the 905.

The 416 market is dominated by condominium sales, which reported a 9.5 per cent decline in April compared to the previous year. In contrast, condo sales in the 905 market declined by just 0.4 per cent. The suburban markets are dominated by detached housing, with sales down by 9 per cent in April compared to April 2023. The bottom line: condo sales are struggling in central Toronto, while low-rise sales face challenges in the 905 suburbs.

John Asher, co-founder of a Toronto-based self-directed real estate platform that simplifies the home-buying process and refunds up to 80 per cent of buy-side commission fees to buyers, sees stronger headwinds for the condominium market in Toronto. He has observed the drop in sales and rise in listings, characterizing Toronto as essentially a “buyers’ market.” However, Asher also highlights a concerning trend: the increase in listing cancellations. This implies that while the number of listings is growing, sellers are withdrawing their properties from the market out of frustration.

Investment properties are more vulnerable in a high interest rate environment, since higher mortgage payments mean higher ownership costs. When the average market rents for condominiums are not high enough to cover those costs, investing in condos is less attractive. Hence, April condominium sales in Toronto have been the lowest since 2017, except 2020, when pandemic-mandated restrictions partially shut down the markets.

While the cherry blossoms will bloom again next year, the housing market need not wait as long for a revival. With favourable interest rate policies and a timely reduction in mortgage rates, we could see a boost in sales later this summer.

Murtaza Haider is director of Regionomics Inc., a consultancy specializing in predictive analytics and machine learning. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.

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