No news is good news, especially for real estate investors looking for markets to stabilize. BMO Capital Markets dived into existing home resale data, and found little movement in July. Inventory is outpacing sales but they believe stocks are largely just being replenished. Toronto condos are a notable exception, where they are starting to see a supply glut. Considering Toronto real estate led Canada’s markets on the way up, it’s worth paying attention to see if it leads on the way down.
Canadian Real Estate Sales Climb But Remains Weaker Than 2019
Canadian real estate sales might be slower than usual, but they’re stable. Home sales saw annual growth of 4.8% in July, which initially sounds like solid growth. Unfortunately, the month is compared to a historically weak period. The lender caveats by noting that sales are improving, but still remain 5% below the 2019 average and remain subdued. A little progress is better than no progress.
Source: BMO
Canadian Real Estate Listings Are Still Rising Faster Than Sales
Inventory is climbing much faster than those subdued sales, easing market pressure. New listings climbed 12.7% over the same period, leaving them 7% above 2019 levels. Only a handful of markets have failed to see inventory improve, easing those tight conditions seen post-2020 rate cut.
“This combination is allowing inventory to gradually build, but not saturate the market,” explains Robert Kavcic, senior economist at BMO Capital Markets.
Canadian Real Estate Is Largely Balanced, Toronto Is A Big Exception
Canadian real estate sellers haven’t budged much on price, despite the slowing conditions. The price of a benchmark home is only 4.2% lower than last year, which is a substantial discount—except when contrasted with the record gains made post-2020 rate cut. Prices have effectively moved sideways for the past few months, with sellers holding on to see if rate cuts stimulate demand.
The average market being balanced doesn’t mean that all markets are balanced. A few exceptions remain, including a region that historically leads the national market.
“There are some pockets (i.e., TO condos) where the market is more saturated, but for Canada overall, the market is almost perfectly stable,” explains Kavcic.
Toronto home prices slipped but not all that much considering the eroding fundamentals. Those include rising residential vacancies, record office vacancies, a surge in overleveraged condo investors, and a multi-year high for mortgage delinquencies.
Canada hasn’t seen any other market erode quite like Toronto has recently. That may mean it’s an isolated issue, but it may not. Toronto real estate led the national market on the way up, and created affordability issues for its professionals. As a result, young adults fleeing (and the investors chasing them) helped to bid up prices across the country. Those premiums paid were often justified solely with the logic that it was cheaper than Toronto.
That presents an important question—if Toronto slows, can other markets retain stronger demand and price premiums?
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