Canada’s existing home inventories are now rapidly replenishing due to several new home completions and owners trying to sell before interest rates go back down, according to a new investor report.
The Bank of Canada’s monetary easing cycle has incentivized homeowners looking to sell to do it sooner rather than later, explained the author of the report, RBC economist Rachel Battaglia.
Analysts found that while new inventory has been strong, demand has become lackluster, as buyers bide their time to see how the market evolves.
“We think most buyers will wait for steeper rate cuts before jumping into the market as the lagged impact of high interest rates keeps budgets under pressure,” said Battaglia.
“The influx of supply has shifted more of the bargaining power to buyers, who in some markets are still extracting price concessions from sellers.”
However, buyers who are taking a step back from the market are contributing to a price slowdown, said Battaglia.
Canada’s largest real estate markets are seeing home sales weaken at a rate much faster than inventory, with Toronto, Vancouver, Montreal and Calgary all facing more of a drop in home sales as new listings pop up.
“More sellers are coming out of the woodwork in Toronto’s housing market with another big influx of new listings in June. There were nearly 18,000 new units put up for sale, representing a 9.3% increase (seasonally adjusted) from May,” reads the report.
Montreal’s housing market also saw increased action last month, with transactions up an estimated 4% from May, ending three consecutive months of declining activity.
“At the same time, sellers released more listings in the market,” reads the report. “A similar increase in supply preserved Montreal’s supply-demand market dynamic—keeping the sales-to-new listings ratio relatively stagnant.
“We estimate active listings are now 24% above their year ago level, which is keeping competition between buyers from heating up the market,” it said.
Vancouver also saw an uptick in June, coming back from a similar slump from previous months.
“We estimate a 5% monthly (seasonally adjusted) increase kept sales lingering around their 2024 high. But that still isn’t enough to bring sales above their year-ago level,” reads the report.
Calgary hit a five month high (seasonally adjusted) for sales in June, offsetting the sharp dip in sales it saw in April.
Calgary “price appreciations have slowed since the spring, but are still robust by historical standards and continue to outpace all other major markets by a longshot,” reads the report.
“Even though affordability in Calgary has eroded dramatically in recent years, it’s still among the most affordable of the major markets we track—giving buyers an edge compared to other major markets in Ontario and B.C.,” it added.
However, Gabriel Giguère, a senior policy analyst at the Montreal Economic Institute said that while these numbers may appear to show the housing crisis is beginning to ease, that’s not necessarily the case.
“This increase in the number of homes being sold is not the same as an increase in the total number of homes,” Giguère told True North.
“This might yield a short-term decrease in home prices, but does nothing to solve the longer term issue of housing affordability. We just need more homes.”
Canada will need to build 1.3 million additional homes by 2030 if it intends to close the nation’s housing gap, according to a report from parliamentary budget officer Yves Giroux released in April.
The PBO’s report titled Household Formation and the Housing Stock looked at how many additional homes Canada still needs to build to bring Canada’s vacancy rate back to the historical average.
“At the national level, we define the housing gap as the number of additional units that would be required to return the total vacancy rate to its long-term average by 2030, accounting for suppressed household formation,” reads the report.
“Estimates suggest that household formation surged above pre-pandemic levels, reaching 460,000 (net) new households in 2023—well in excess of record net housing completions of 242,000 units.”