Canada: A Hot July in the Housing Market

July saw continued growth in existing home sales, making this the fourth straight month of gains. Sales have now risen to about the mid-range of seasonal norms. The Bank of Canada’s External link. decision to hold the policy rate steady was widely expected, and would have had little effect on buyers as it came at the end of the month. While trade war uncertainty still looms, the opportunity to buy in the current lower-priced market may have been too good to pass up for some purchasers. Indeed, average and benchmark prices remain well below their early 2022 peaks, at about -14% and -18% respectively (graph 1). 

New listings picked up only 0.1% m/m from June, and inventory continued to shrink, reaching 4.4 months from a cycle higher of 4.9 months as recently as April. Nevertheless, it remains well above its long-run average of around 3.7 months. With this excess supply in the market, seasonally adjusted average sale prices only ticked up slightly in July despite increased sales activity nationally, while the benchmark price remained well below where it started the year.

However, aggregate housing data obscure deep regional divides. Canada’s apparent stability masks the fact that regions are moving in opposite directions, driven by sharp differences in local economic conditions and divergences in housing demand and supply. For example, last month’s jobs report External link. showed sharply lower employment, but job losses were confined to only the four largest provinces. Bifurcation in the housing market exists not only between provinces, but also between cities within provinces. Monthly home sales grew another 2% in Quebec City, while falling 1% in Montreal; grew 13% in Toronto, while falling 0.4% in Ottawa; and grew almost 9% in Vancouver, while falling nearly 5% in Victoria. Despite stronger home sales in both Toronto and Vancouver, they remained in buyer’s market territory in July, but the tide has clearly turned for both cities (graph 2).

It’s clear at this point—unless something completely unforeseen happens, the worst of the recent resale housing market downturn is in the rearview mirror, at least at the national level. The combination of lower prices and less economic uncertainty, despite the ongoing trade war, may continue to entice more prospective homebuyers off the sidelines as we head into the late summer market.