Canadian home sales were flat in March, but rate cut boost expected

March marked another calm month for the Canadian housing market, with little change in buyer demand or price growth.

The latest data from the Canadian Real Estate Association (CREA) shows national home sales rose 1.7% compared to last March, with a total of 42,633 properties changing hands. That’s just a 0.5% smidge higher than sales activity in February.

The national average home price rose 2% to $698,520, while the MLS Home Price Index – a measure of the most typical type of home sold – was roughly flat, up 0.7%.

From a long-term perspective – and as has been the trend in regional markets – the supply of new homes continues to surge, increasing 10% year over year with 76,021 homes brought to market. On a short term basis, though that tightened by -1.6% from February.

The Canadian housing market remains balanced

That slight contraction in listings led to the national sales-to-new-listings ratio (SNLR) rising to 57.4%; this ratio reflects the level of competition within the housing market, with a range of 45 - 65% reflecting balanced conditions (recently updated by CREA from the 40 - 60% range).

Above and below that threshold reflect sellers’ and buyers’ markets, respectively. According to the current SNLR, the Canadian housing market can be considered on the tighter end of balanced, though approaching seller-friendly conditions. The long term average for the SNLR this time of year is 55%

In terms of overall supply, there were 3.8 months of inventory on a national basis at the end of March 2024, unchanged from the end of February. The long-term average is about five months of inventory. 

“We’ll have to wait for the April data to really understand how buyers are responding to all these new properties for sale, but if you look at last spring as a guide and add to that record population growth in the last year and a central bank that is far more likely to cut this summer than raise like it did last year, it could get interesting,” said Shaun Cathcart, CREA’s Senior Economist.

“Will the story be high interest rates keeping a lot of people on the sidelines this year, or the much expected and anticipated first rate cuts enticing a lot of people back into the market? Probably a bit of both.” 

Markets and analysts are largely anticipating a rate cut from the Bank of Canada by either June or July, following a promising inflation report in February that revealed the Consumer Price Index had risen by just 2.8% – within throwing distance of the central Bank’s 2% target. The Bank opted to hold its trend-setting Overnight Lending Rate unchanged at 5% in its most recent announcement last Wednesday, where it has remained since July 2023, but strongly hinted in its language that they are preparing to loosen their monetary policy in the months to come.

CREA updates forecast on lower rate expectations

In fact, shifting expectations for interest rates in the near future have prompted CREA to update their forecast for the remainder of 2024 and 2025.

“Interest rates are expected to continue to be the major factor affecting Canadian housing markets into 2024 and 2025,” states CREA’s release. “Many Canadian housing markets have been quiet since the Bank of Canada’s summer rate hikes last year. Interest rates have been the major factor affecting markets over the last few years, and this is expected to continue to be the case in 2024 and 2025.”

“Expectations around the timing of the first rate cut in 2024 seem to have solidified to the second half of the year, and financial markets are currently pricing in about 50 basis points of cuts by the end of 2024.”

According to CREA’s new forecast, 492,083 homes are now expected to sell this year, marking a 10.5% increase from last year, which is largely unchanged from their original call. However, sales are now forecast to increase another 7.8% to 530,494 transactions next year, as interest rates approach “neutral” levels and affordability improves.

Some 492,083 residential properties are forecast to trade hands via Canadian MLS® Systems in 2024, a 10.5% increase from 2023. This is mostly unchanged from CREA’s previous forecast.

Prices, meanwhile, are anticipated to rise 4.9% this year to $710,468, before rising another 7% between 2024 and 2025 to $760,120.

Also read:

• Canadian February CPI falls to 2.8%
• GTA home prices rise in March, despite softer sales
• Rising home prices eroded affordability in February
• A new income mortgage stress test is coming for some borrowers