Finance

Canada’s housing market hit an ‘unexpected surge’ heading in 2024. Will it last? – National

Canadian home sales saw an “unexpected surge” in December as sellers and buyers came together to get deals done before the new year, according to the national real estate body, but experts are divided on whether the uptick will last.

The Canadian Real Estate Association (CREA) said Monday that December saw an 8.7 per cent jump from November in the number of homes sold. That put the final month of the year on par with some of the “relatively stronger” spring and summer months, CREA said.

CREA senior economist Shaun Cathcart said in a statement that it’s unlikely the surprisingly strong December was a sign of a housing market rebound kicking off.

“It was more likely just some of the sellers and buyers that were holding onto unrealistic pricing expectations last fall finally coming together to get deals done before the end of the year,” he said.

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“We’re still forecasting a recovery in housing demand in 2024, but we’ll have to wait a few more months to get a sense of what that ultimately looks like.”


Click to play video: 'Signs of lower interest rates could fuel Canada’s housing market rebound'


Signs of lower interest rates could fuel Canada’s housing market rebound


BMO chief economist Doug Porter pointed to unseasonably warm weather and a “sudden pullback” in long-term borrowing costs as likely factors behind the December bump.

Declining bond yields, tied to expectations for rate cuts from the Bank of Canada in 2024, have pushed down some fixed mortgage rates by more than a percentage point from recent peaks seen in late October.

Some buyers may have been inclined to purchase a home as last year wrapped up in order to get ahead of the anticipated 2024 boom, said Cailey Heaps, president of the Heaps Estrin Real Estate Team in Toronto.

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Although borrowing costs are still high, with the central bank holding its key rate at five per cent, she said those looking to make a move now have the advantage of potentially finding good deals on the market due to lower demand and less competition.


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“The primary advantage is we will likely see upward pressure on pricing once the rates start to drop,” she said.

“You’re locking into a higher rate, but … you just factor it into your purchasing price and your overall budget.”

There were few people listing their homes in the traditionally slow December, CREA said, pushing the sales-to-new listings ratio back up to 57.8 per cent from just over 50 per cent in November. This key metric helps to gauge whether markets favour buyers or sellers, with CREA putting the long-term average of around 55 per cent.

The volume of home sales were up 3.7 per cent year-over-year in December.

Looking back at the whole year, CREA said there was a total of 443,511 home sales in 2023, down 11.1 per cent from the year earlier when the Bank of Canada’s interest rate tightening cycle — and by extension, the housing correction — began.

CREA said 2023 was the lowest annual level for national sales since 2008. Last year was nearly on par with the five years following the financial crisis of that year, and the first year of the mortgage stress test in Canada in 2018.

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On a non-seasonally adjusted basis, the national average home price hit $657,145 to close the year, up 5.1 per cent from December 2022.

CREA noted that ongoing price declines are mainly concentrated in Ontario’s Greater Golden Horseshoe region as well as some markets in British Columbia. Elsewhere, prices are holding firm or climbing in some provinces including Alberta, New Brunswick and Newfoundland and Labrador.

What does 2024 hold for real estate?

CREA also updated its 2024 housing forecast on Monday.

The association said it expects 489,661 residential properties to be sold this year — a 10.4 per cent increase from 2023 — and the national average home price to climb 2.3 per cent on an annual basis to $694,173.

Noting that Canadian housing markets have remained quiet since the Bank of Canada’s interest rate hikes last summer, the association said there’s reason to be optimistic in the new year with expectations for the timing of the first 2024 rate cut pulled forward.

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“The real test of the markets’ resilience will be in the spring,” said CREA chair Larry Cerqua in a press release.

National Bank economist Daren King said data trends from Canada’s largest housing markets — Toronto, Vancouver, Montreal and Calgary — suggest November was likely the trough for home sales, but he agreed the strong figures last month were not necessarily “a sign that the real estate market is now on the rise for good.”

“We’re seeing economic growth decelerating, the job market also is not as good it used to be, we’re seeing the unemployment rate increasing, so of course, we’ll have some headwinds ahead,” King said in an interview with the Canadian Press.

“When we will have more confidence that the Bank of Canada will start decreasing their interest rate — we’re expecting it to decrease in April, probably — at that point, we can expect the real rebound then.”


Click to play video: 'As fixed-rate mortgage rates decline, experts caution against longer-term mortgages'


As fixed-rate mortgage rates decline, experts caution against longer-term mortgages


Others feel the recovery might come earlier than that. A separate report released Monday by Royal LePage suggested the Canadian market is showing signs of home price stability, with the aggregate price of a home increasing 4.3 per cent annually to $789,500 in the fourth quarter of 2023.

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Buyer sentiment can have an equal effect on market trends as inventory or interest rates, according to Phil Soper, president and CEO of Royal LePage.

“I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark,” he said.

“The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow. We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada’s key lending rate.”

Heaps said the market is anticipating an increase in inventory this year, which adds another layer to the dilemma some buyers face before the cycle of rate cuts gets underway.

“Do you buy something now because you feel you’re going to get ahead of the market pricing, knowing that there might be more options in the spring? Or do you wait for more options?” she said.

“That’s a very subjective decision that people will make.”

– with files from The Canadian Press

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