National home sales slow in June as buyers react to rate hikes
June 2023 CREA Recap
The national summer housing market slowed in June, as recent rate hikes from the Bank of Canada have injected a “major source of uncertainty” into buyer and seller psychology.
The Canadian Real Estate Association reports a total of 50,155 homes traded hands over the course of the month, up just 1.5% from the previous period. It’s a clear indicator that buyer enthusiasm chilled following the central bank’s rate increase on June 5th, compared to the 5.1% sales increase seen between April and May. However, on an annual basis, transactions are up by 4.7% - the largest year-over-year sales increase in two years.
According to CREA, a little over half of all local real estate markets saw gains, with sales in western Canada – British Columbia and Alberta – offsetting fewer deals in the Greater Toronto Area.
Home prices also continued to recover, with the national average coming in at $709,218, up 6.7% from last June. The MLS HPI Index – a measure of the most typical type of home sold and considered to be the most accurate way to gauge price trends – came in at -4.5% year over year, which is the smallest decline since November 2022.
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New inventory (finally) offers buyers relief
The market also received a badly-needed infusion of inventory, which eased the pressure somewhat for buyers; the number of newly-listed homes increased 5.9% from May, with 84,749 homes brought to market.
CREA points out that, combined with the April and May supply upticks of 3.1% and 7.6%, respectively, new listings have climbed from a 20-year low in March to reflect more average levels for the summer market, despite remaining -11.1% below last year.
That increase was also enough to offset sales, and ease the sales-to-new-listings ratio (SNLR) down to 63.6% from 66.4% last month. However, that still reflects a steep sellers’ market overall across Canada; CREA defines a ratio between 40- 60% to be a balanced market, with above and below that threshold reflecting sellers’ and buyers’ markets, respectively. June’s SNLR remains well above the long-term average of 55.2%.
Overall, the June numbers point to stabilization in the market, says CREA Chair Larry Cerqua, following last year’s roller coaster of rapid price growth and subsequent cooling as the Bank’s hiking cycle took hold.
“Most importantly, the recovery in new listings over the last few months will give buyers more choice and should help to slow price growth over the second half of the year,” he adds.
There were 3.1 months of inventory on a national basis at the end of June 2023, unchanged from the end of May and down more than a full month from the most recent peak at the end of January. The long-term average for this measure is about five months.
“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.
“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.”
CREA downgrades forecast as rising interest rates bite
The national association has also tweaked its market forecast for the remainder of the year and next, to account for the unexpected return of rate hikes.
While the market sprang to life following the short-lived rate hold in March, rising borrowing costs have sharply curtailed activity – though there were already indicators things were slowing down.
“As expected, national home sales came flying out of the gates in April 2023,” states CREA’s forecast. “Buyers who had been sitting on the fence responded to the twin signals of interest rates looking like they were at a top and property values hitting bottom.”
“That said, even before the resumption of rate hikes, the recent sales rally had already shown signs of losing steam,” CREA points out. “The biggest month-over-month increase in sales activity was back in April, followed by an increase only half as big in May, then by a small 1.5% gain in June. This was likely because new listings had fallen to a 20-year low, which was reflected in month-over-month price gains in April, May, and June that were only bested by those seen during the COVID-19 pandemic.”
Given rates will likely be higher for a longer period of time – analysts aren’t expecting cuts of any kind until the second half of 2024 – CREA has downgraded its forecast for both sales and prices. It now calls for a total of 464,239 properties to sell in 2023, which would mark a -6.8% decline from 2022. Prices, however, will remain largely sticky as inventory remains tight, edging down just 0.2% this year to an average of $702,409.
Things are looking to pick up considerably in 2024, however, as “monetary policy starts to move back in the direction of a more neutral stance,” with sales forecasted to rebound by 11.2% to 516,072 units. This will bring national sales back in line with their 10-year average, though will remain below the boom years of 2007, 2016, 2020, and 2021.
The national average home price is forecast to rise a further 3% from 2023 to 2024 to around $723,250. This is only close to where it was in the second quarter of 2023. So the forecast, in general, is for prices to mostly stabilize until interest rates start to come down.