Canada: Home Sales Plunge, Weakness Spreads
- Canadian existing home sales fell by 5.6% in October 2023. It was the fourth consecutive monthly decline, and the sharpest drop since June 2022. Table 1 summarizes key data points.
- We’re still tracking annualized real GDP growth in the range of 0% to 0.5% in Q3 2023, which is below the Bank of Canada’s latest projection of 0.8%.
Canada’s housing market has now given back almost three quarters of the sales gains seen between January—when the central bank initially paused its tightening cycle—and June—when it restarted interest rate increases. Last month, weakness in sales and prices was more acute than expected. It also spread further beyond Toronto and Vancouver—which experienced the sharpest slowdowns in the aftermath of the hikes—with nine provinces witnessing declines last month. To the question of whether the worst of the decline was over in Toronto and Vancouver, the answer from October’s data was a resounding “no” (graph 1).
At the national level, new residential listings fell for the first time in seven months. We highlighted last month that it was possible that listings could well fall back if sales and price weakness prompt prospective sellers to wait until more favourable conditions emerge. Still, new listings are up more than 30% since March. The strength, persistence, and breadth of the listings trend across Canada should be seen as a sign that many individuals who bought homes in a lower-rate environment are now struggling with sharply higher borrowing costs. So, despite the drop in short-run supply in October, it’s clear that market sentiment remains much more pessimistic than it was just a few months ago.
Regional differences remain but are becoming less distinctive. Home purchasing activity continues to be well above pre-pandemic levels in Alberta’s two largest cities even after recent slowing of momentum, and demand-supply conditions are more favourable for sellers. But the loosening of conditions is unmistakeable, particularly in Calgary. Meanwhile, Toronto remains firmly in buyers’ market territory, and Vancouver appears headed that way as well (graph 2).
In all, the data very clearly continue to show a Canadian housing market weakening under the weight of stretched affordability and the cumulative effects of sharply higher interest rates. Given our forecast for weaker economic and employment growth in the months ahead, we still see little scope for improvement in the next few quarters. The Bank of Canada looks to have finished hiking rates, and new buyers flocked into the market after the last pause. However, the higher-for-longer narrative that has made its way into bond markets means that a similar rebound is unlikely until cuts begin.
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