Canada’s largest housing markets experienced a significant drop in sales last month, with both potential buyers and sellers delaying their plans, as reported by the national real estate body, the Canadian Real Estate Association (CREA).
According to CREA, home sales in October declined by 5.6% compared to the previous month, with reduced activity observed in most of Canada’s major housing markets.
On a non-seasonally adjusted basis, the national average sale price for a home in October reached $656,625, marking a 1.8% increase from the previous year and slightly above the figures recorded in September.
Another crucial metric, the sales-to-new listings ratio, pointed to a buyer-friendly trend in Canada’s housing market. The ratio dropped to 49.5% in October, hitting a 10-year low, in contrast to the all-time high of 67.9% registered in April and the long-term average of 55.1%.
A lower sales-to-new-listings ratio suggests that buyers have more options and bargaining power, signaling a buyer’s market. Conversely, a higher ratio favors sellers by indicating a tighter housing market.
Economist Rishi Sondhi of TD Bank noted that Ontario’s sales-to-new-listings ratio is at its lowest point since the 2008-09 financial crisis. He predicted that prices would decline in Ontario and British Columbia in the coming months, potentially impacting the national average price.
The shift towards a buyer’s market occurs as higher interest rates set by the Bank of Canada reduce purchasing power for many Canadians. Economist Darren King of the National Bank of Canada pointed out that housing affordability is decreasing due to elevated borrowing costs, which is expected to result in subdued sales in the upcoming months.
Larry Cerqua, Chair of CREA, suggested that many potential buyers have already postponed their plans as of November. A slowdown in new listings in October indicates that some sellers may be delaying their selling plans, although there are still active participants in the market looking to finalize deals this year.
Furthermore, the proportion of canceled listings continued to rise in October, limiting the overall increase in market supply. CREA’s Senior Economist Shaun Cathcart noted that while housing demand remains high across the country, the data from October indicates that the pressure is likely to remain suppressed until at least spring 2024. The housing market’s future trajectory will depend on whether the Bank of Canada decides to increase interest rates or implement rate cuts by next March.
Cathcart projected that if there are signs of the central bank preparing to cut rates, the level of activity seen in the spring, when sales and prices surged during a rate pause, could potentially return in six months.