Canada: All Homeowners Want for Christmas Is an Interest Rate Cut
- Canadian existing home sales fell by 0.9% in November 2023—the fifth consecutive monthly decline. Table 1 below summarizes key data points.
- We’re still tracking annualized real GDP growth in the range of 0% to 0.5% in Q4 2023, which is a touch below the Bank of Canada’s latest projection of 0.8%.
The housing market continues to retrench across Canada as homeowners and prospective homebuyers alike increasingly feel the pain of accumulated rate hikes. National sales have now given back more than 80% of the sales gains seen between January—when the central bank initially paused its tightening cycle—and June—when rate increases resumed. Though the drop was not as large as in the prior month, declines were once again broad-based in November. Toronto and a few major Ontario centres experienced small increases. However, The Big Smoke’s slide since the summer has been among the most pronounced of any city, alongside the also high-priced Vancouver market (graph 1).
For listings, a second consecutive monthly decline is only natural in an environment of price and sales weakness, as prospective sellers opt to wait until more favourable conditions emerge. Still, following rises in every month from April to September, new listings sat almost 30% higher than in March last month. That gain and its breadth across regional markets suggests that many individuals who bought homes in a lower-rate environment are now struggling with sharply higher borrowing costs. Consequently, Toronto continues to report demand-supply conditions in favour of buyers, though Hogtown’s sales-to-new listings ratio ticked moderately higher in November. Still, all major markets appear to be moving in a direction favouring prospective buyers, and these results are consistent with our view that home prices will continue to weaken across Canada in the first quarter of next year.
The broad-based rise in inventory is also striking, though there are important regional differences here as well. We’ve seen increases in every large province in recent months (graph 2). This, too, suggests conditions less supportive of current housing prices over the next several months, given that market balances are much less tight than they were during the pandemic. Despite some loosening of late, Alberta inventories are well below where they were in the period between the last pre-pandemic commodity price correction and COVID-19. Quebec inventories are also below historical norms. By contrast, Ontario supply is at some the highest levels since the early 2010s.
In all, more soft results last month and weak prospects ahead for the Canadian housing market should encourage the Bank of Canada to stay the course on monetary policy. It’s clear that the housing market and the broader Canadian economy are weakening under the weight of high interest rates, and significant progress has been made in reducing inflation. We think the central bank is done hiking, and will begin cutting by the middle of next year.
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