National home prices close out 2023 above prior year, despite continued slowdown in market activity

  1/15/2024 |   SHARE
Posted in Canadian Housing Market by Vanguard Realty | Back to Main Blog Page

Royal LePage expects sidelined buyers to re-engage this quarter ahead of expected rate cuts by the Bank of Canada

Fourth quarter highlights:

• National aggregate home price increased 4.3% year over year in Q4 2023; decreased 1.7% quarter over quarter
• Aggregate home price in greater regions of Toronto, Montreal and Vancouver posted gains of 5.1%, 4.1% and 2.7% year over year, respectively, in final quarter of 2023
• Among report's major regions, Calgary recorded highest year over year price appreciation (10.7%); only major region to post quarterly price gains in Q4 2023 (1.5% over Q3)
• 81% of regional markets posted a quarter-over-quarter decline
• Approximately 2.2 million mortgages in Canada will be renewing over the next two years, most at a much higher interest rate
• National aggregate home price expected to rise 5.5% year over year in Q4 of 2024

TORONTO, Jan. 15, 2024 /CNW/ - According to the Royal LePage House Price Survey released today, the aggregate¹ price of a home in Canada increased 4.3 per cent year over year to $789,500 in the fourth quarter of 2023. On a quarter-over-quarter basis, however, the national aggregate home price decreased slightly by 1.7 per cent, highlighting that elevated borrowing costs continue to affect market activity, as Canadians adapt to the higher interest rate environment.

 "I believe the narrative suggesting that the housing market will rebound only when the Bank of Canada lowers rates misses the mark," said Phil Soper, president and CEO of Royal LePage. "The recovery will begin when consumers have confidence the home they buy today will not be worth less tomorrow. We see that tipping point occurring in the first quarter, before the highly anticipated easing of the Bank of Canada's key lending rate."

The Royal LePage National House Price Composite is compiled from proprietary property data nationally and regionally in 63 of the nation's largest real estate markets. When broken out by housing type, the national median price of a single-family detached home increased 4.4 per cent year over year to $816,100, while the median price of a condominium increased 4.0 per cent year over year to $583,900. On a quarter-over-quarter basis, the median price of a single-family detached home decreased 2.1 per cent, while the median price of a condominium declined modestly by 0.6 per cent. Price data, which includes both resale and new build, is provided by Royal LePage's sister company RPS Real Property Solutions, a leading Canadian real estate valuation company.

"Canadian consumers are moving through a period of transition and as a result, so are the dynamics of our national housing market," added Soper. "Buyer sentiment can have as great an impact on market trends as inventory or interest rates. Early market recovery will be sparked by signs of home price stability, and we are very close to that now."

Home prices in Canada have not yet fully recovered from the correction, with the aggregate price of a home in Canada sitting 7.9 per cent below the peak reached in the first quarter of 2022. However, the national aggregate home price remains well above pre-pandemic levels. In the fourth quarter of 2023, the aggregate price of a home in Canada recorded an increase of 18.7 per cent over the same period in 2020, and 22.2 per cent over the same period in 2019.

"People are working, with unemployment particularly low among the key 25 to 55 year-old demographic. Discretionary spending is down and savings levels are materially higher than normal. Nearly two years after the Bank of Canada began raising rates, mortgage delinquency remains at historic lows. We believe many who need housing have the capacity to enter the market, they simply lack the confidence to transact," Soper continued.

Throughout the second half of 2023, while prices declined modestly across the country, the Calgary real estate market bucked the trend continuing on an upward price trajectory. Among the report's major regions, Calgary is the only one to post a quarter-over-quarter aggregate price gain (1.5%), and recorded the highest year-over-year price appreciation (10.7%).

Sales and inventory

According to the Canadian Real Estate Association (CREA), months of inventory have been increasing compared to the ultra-low levels recorded during the pandemic-fueled boom, yet remain below historical norms. In the final quarter of 2023, there were just over four months of inventory available in Canada, compared to less than two months at the end of 2021, and between five and six months' worth in 2018 and the first half of 2019.2

"Over the last year and a half, we've seen a drop in sales activity in most of Canada's major real estate markets, while inventory levels have gradually increased. Yet, we know the number of homes available remains well below what we need today and will continue to need in the future. The fundamental shortage of housing supply in this country will inevitably put upward pressure on home prices when temporarily sidelined buyers return to the market in the months ahead," said Soper. 

Interest rates and mortgage renewals

In December, the Bank of Canada once again held its key lending rate steady at 5.0 per cent.3 The central bank has indicated that it has likely concluded its interest rate increase campaign, and it is widely expected to make modest cuts later this year. Meanwhile, several major financial institutions have already begun offering discounts on fixed-rate mortgages as bond yields decline.

"The Bank of Canada governing council will soon face the difficult task of trying to balance the lowering of interest rates without simultaneously stimulating spending, which would cause inflation to rise again," said Soper.

In November, the Consumer Price Index (CPI) rose 3.1 per cent on a year-over-year basis, matching the increase in October.4 If mortgage interest costs are taken out of the CPI calculation, inflation sits at 2.2 per cent, close to the Bank of Canada's target rate.5 

"In Canada, we purchase homes with short-term mortgages of five years or less, in contrast to the situation in the U.S. where much longer 30-year terms are the norm. In a typical year, 25 per cent of our mortgages turn over. Consequently, during the period from 2023 to 2025, most homeowners in Canada will have transitioned to higher mid-single-digit borrowing. We will be required to adapt quickly, positioning our industry on a path to recovery more quickly than in the U.S. where the prospect of losing a below-market rate will act as a deterrent to moving."

In 2024 and 2025, nearly half (45%) of all outstanding mortgages in the country will be up for renewal, according to the Canada Mortgage and Housing Corporation (CMHC).6 That's about 2.2 million households that will be renewing their mortgages, most at a much higher rate. 

"Similar to what we witnessed last spring, when the Bank of Canada paused rates for the first time in a year causing sales activity and prices to increase almost immediately, the first sign of rate cuts – even if only by 25 basis points – could create a flurry of activity in the real estate market,  releasing pent-up demand. Those who have been holding off listing their homes will follow close behind."

Forecast

In December, Royal LePage issued its 2024 Market Survey Forecast, projecting that the aggregate price of a home in Canada will increase 5.5 per cent in the fourth quarter of 2024, compared to the same quarter in 2023.

Nationally, home prices are forecast to see modest quarterly gains in the first six months of 2024, with more considerable increases expected in the second half of the year, due to a boost in activity following a widely anticipated series of interest rate cuts by the Bank of Canada.

Royal LePage's forecast is based on the prediction that the Bank of Canada has concluded its interest rate hike campaign and that the key lending rate will hold steady at five per cent through the first part of 2024.  

Royal LePage House Price Survey Chart: rlp.ca/house-prices-Q4-2023
Royal LePage Forecast Chart: rlp.ca/market-forecast-Q4-2023

REGIONAL SUMMARIES
Greater Toronto Area
The aggregate price of a home in the Greater Toronto Area (GTA) increased 5.1 per cent year over year to $1,123,300 in the fourth quarter of 2023. On a quarterly basis, however, the aggregate price of a home in the GTA decreased 2.1 per cent.

Broken out by housing type, the median price of a single-family detached home increased 3.6 per cent year over year to $1,373,800 in the fourth quarter of 2023, while the median price of a condominium increased 5.4 per cent to $719,900 during the same period.

"For the first time in months, Canadians seem to be feeling somewhat optimistic about the trajectory of borrowing costs. A brisk spring real estate market is on the horizon for Toronto and the GTA, provided the Bank of Canada has concluded its aggressive series of interest rate increases," said Karen Yolevski, chief operating officer, Royal LePage Real Estate Services Ltd. "Through the second half of 2023, sales activity in the region steadily declined allowing a small cache of inventory to build up. Despite this, home prices only dipped modestly during that time, due to a coinciding drop in demand as would-be buyers remained sidelined, waiting for interest rates to come down. And still, prices have remained above 2022 levels."

In the city of Toronto, the aggregate price of a home increased 3.0 per cent year over year to $1,119,000 in the fourth quarter of 2023. During the same period, the median price of a single-family detached home increased 5.6 per cent to $1,602,200, while the median price of a condominium increased 2.7 per cent to $699,800.

Yolevski noted that despite a recent increase in supply, housing stock in the GTA remains altogether out of step with continuously growing demand. 

"With new household formation from young Canadians, older generations wanting to age in place and a record number of newcomers entering the country, new construction cannot keep pace with the rate of demand," said Yolevski. "Further, the demand-supply imbalance cannot be rectified with one simple solution. There is no silver bullet to solving Toronto's – nor Canada's – housing supply and affordability crisis. Rather, a series of concurrent initiatives to support and incentivize a rapid increase in housing supply is necessary through cooperation from all levels of government."

In December, Royal LePage issued a forecast projecting that the aggregate price of a home in the GTA will increase 6.0 per cent in the fourth quarter of 2024, compared to the same quarter in 2023.

Royal LePage House Price Survey Chart: rlp.ca/house-prices-Q4-2023
Royal LePage Forecast Chart: rlp.ca/market-forecast-Q4-2023

Ottawa

The aggregate price of a home in Ottawa increased 4.8 per cent year over year to $754,700 in the fourth quarter of 2023. On a quarterly basis, however, the aggregate price of a home in the region decreased 1.1 per cent.

Broken out by housing type, the median price of a single-family detached home increased 4.9 per cent year over year to $866,700 in the fourth quarter of 2023, while the median price of a condominium increased 4.5 per cent to $401,100 during the same period.

"The Ottawa housing market experienced a slowdown in activity towards the end of the year, allowing for a slight build-up of inventory throughout the region. While it is typical to see a seasonal decline in activity in the winter months, interest rates have continued to keep both buyers and sellers on the sidelines, with many opting to hold off on transacting until the Bank of Canada lowers lending rates," said John Rogan, broker of record, Royal LePage Performance Realty. "There is pent-up demand from buyers who are eager to transact, and even a slight decrease in lending rates in the coming months will result in a surge of activity in Ottawa's housing market."

Rogan noted that sidelined buyers will take advantage of lower interest rates and anticipates that this momentum will fuel activity in the housing market by the end of the first quarter and into the spring.

"Heightened activity is expected towards the end of the first quarter as we head into the spring market, especially if we see a decline in interest rates. Despite a noticeable uptick in available inventory compared to previous years, I anticipate that we will see upward pressure on housing prices as supply remains outpaced by demand in the region," said Rogan.

In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Ottawa will increase 4.5 per cent in the fourth quarter of 2024, compared to the same quarter in 2023.

Royal LePage House Price Survey Chart: rlp.ca/house-prices-Q4-2023
Royal LePage Forecast Chart: rlp.ca/market-forecast-Q4-2023

Source: Royal LePage Real Estate Services

Bank of Canada, GTA Real Estate Market, Housing Market Forecast, Ontario Real Estate, Ontario Real Estate News