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Canadian realtors hopeful sales growth will continue

January 2024 CREA update

Realtors are excited about a jump in home sales this January, and hopeful the month has marked the start of a trend back towards a sellers’ market.

“Activity is now back on par with 2023’s relatively stronger months,” boasts the Canadian Real Estate Association’s (CREA) monthly housing report for January 2024. Canadians bought and sold 25,540 homes in the first month of 2024, marking an increase of 22% from January 2023. Sales are also up from December’s Canadian home sales figures at a rate of 3.7% month-over-month.

Real sales prices are up 7.6% year-over-year while the MLS Home Price Index (HPI) is up 0.4% year-over-year.

Falling inventory fails to spur price growth

Sales outpaced new listings in January, edging the sales-to-new-listings ratio (SNLR) up to 58.8%; CREA notes that a range of 40% to 60% typically represents a balanced market. At the end of January there were 3.7 months of inventory available, a slight reduction from December’s figure of 3.8 months.

While the metrics are pointing to a stronger housing market, CREA’s senior economist, Shaun Cathcart, warns that we’re still “working through the weakness of the last two years.”

“Sales are up [and] market conditions have tightened quite a bit,” notes Cathcart. “However, in areas where sales have shot up most over the last two months, prices are still trending lower.” The report says that while real prices were up 7.6% year-over-year, the MLS Home Price Index, which benchmarks home prices over time, was down -1.2% from December.

According to CREA, prices have fallen primarily in Ontario but particularly in the Greater Toronto Area. Home prices are also down in British Columbia, but are steady throughout most of the rest of the country. Alberta and Newfoundland and Labrador are two markets where home prices have increased.

Buyers and sellers proceeding with caution

Much like the groundhog dared to take a peek out of his hole earlier this month, home buyers and sellers showed a bit more confidence in the market this January. What remains to be seen is whether they’ll be spooked by their shadow and return to hiding.

Last year’s sales numbers show just how easily we Canadians can be spooked. It took about six months after mortgage rates stabilized in August 2022 before home sales started to pick up. But that activity dried up almost immediately when rates started climbing again in June.

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This month’s increase in sales is the first sign that we’re ready to try again since rates peaked in October. But the confidence may be short-lived due to the likelihood of another near-term rise in mortgage rates. Bond yields are the primary influencer of fixed mortgage rates, and they’ve been out-performing expectations recently as the U.S. economy booms. If that trend continues and mortgage rates resume their rise, watch for buyers and sellers to quickly exit the market until months after things level off again.

Realtors, who profit from sellers’ markets, are hopeful Canadians have had enough of the waiting game and will show a bit more inurement to mortgage rate hikes than they have in the past. “The market has been showing some early signs of life over the last couple of months, probably no surprise given how much pent-up demand is out there,” said Larry Cerqua, Chair of CREA. “There’s a consensus that the market will probably look quite a bit different this year compared to 2022 and 2023.”

The bottom line

The Canadian housing market has yet to show that it won’t be affected by interest rates, and we have yet to see the level of stability that led to an uptick in home sales through the middle of 2023. Pair that with the looming threat of higher mortgage rates, and the likelihood of uninhibited housing market growth feels too low for optimism.

For now, buyers and sellers are willing to venture out into the world, but expect a full retreat at the earliest signs of rising mortgage rates (which, by the way, are already here).

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