Canadian real estate markets aren’t firming up with rate cuts—demand is softening. RBC is warning investors that early data shows rate cuts failed to stimulate major markets in July. In fact, they generally observed the opposite trend—sales continued to weaken while inventory climbed, as investors try to lighten their market exposure in key regions like Toronto.
Canadian Real Estate Markets Weaken Further Post-Rate Cuts
The Bank of Canada (BoC) rate cuts marked a turning point for real estate, according to RBC. Not because of what the markets did, but because of what they didn’t—neither the June or July rate cuts were able to stimulate buyers psychologically.
“After a small uptick between May and June, home resales fell again in some markets including Vancouver, Calgary and Toronto in July, according to early reports from local real estate boards,” explains Robert Hogue, Assistant Chief Economist at RBC.
The bank doesn’t see recent cuts stimulating much demand. They believe much deeper cuts will need to be seen before mortgages are cheap enough to stimulate markets.
Canadian Real Estate Generally Saw Demand Weaken As Supplies Rise
Only a handful of major markets have reported July data, but the ones that have, show a slow market. That appears to be amplified by price distribution, with more expensive markets seeing slow sales and much higher inventory levels.
The supply and demand balance remains tight in Calgary, Edmonton, and Montreal—where sellers retain the power, potentially meaning higher prices in the future. Vancouver and Fraser Valley find themselves in balanced markets, with supply and demand balanced at the current price level—though slipping towards buyers. Toronto was the only region to plunge into oversupplied territory, implying lower prices may be needed to get inventory flowing.
Source: RBC.
Virtually all markets in the group have seen conditions ease from last year. Annual growth of new listings outpaced that of sales in Toronto, Vancouver, Calgary, and Fraser Valley. Edmonton was an outlier with sales significantly outpacing new inventory. Last but not least was Montreal, where sales just outpaced listings.
Source: RBC.
The reason for the sudden surge of inventory varies, according to RBC. However, markets are currently being driven by two factors—investors pulling some off the table and sellers that thought rate cuts would end the downturn.
“In some cases, such as in Toronto, it reflects the completion of many newly built units (mainly condos) that owners (mainly investors) are looking to offload. In other cases, it could be sellers betting lower rates will spur buyer interest and improve sale outcomes. In some, it may signify homeowner distress arising from high rates,” Hogue explains.
In any case, the bank continues to see the market sputtering over the next few months. They repeated that much larger rate cuts will need to be observed for any material impact on demand.
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