CREA released their December statistics along with their hallmark annual optimism heading into January. The big question on everyone’s mind is whether or not that optimism is warranted moving into 2025’s real estate market. 

CREA also seems to feel that we can see a resurrection of volume (the number of homes sold in 2025) without prices rising to the point of unaffordability. 

I think they might be right. At this point, people are buying homes again because they can afford to. As long as that doesn’t change, 2025 should be a good year for Realtors, even if it’s not a good year for the homeowners hoping their house prices go up. 

We should certainly hope to see some life in the resale market, given that new condo sales in 2024 were the lowest they’ve been since 1996, according to a recent report from Urbanation.

Source: Urbanation

Should this housing correction continue along its path, it looks like we’re in about the third or fourth inning here, and it’ll be a while until we see house prices trend upwards again in a meaningful way. BMO recently visualized this in the excellent chart below.

As we close the books on 2024, it’s worth reflecting on the Canadian housing market’s performance, particularly during its quieter December period. After a remarkable fall rebound, the market saw sales activity dip 5.8 per cent in December compared to November. 

At first glance, this might seem like a retreat, but dig deeper, and the picture tells a different story—a market poised for a potentially significant shift this coming spring.

Much like a second-period intermission, December’s slowdown feels more like a pause than an end. Despite the dip, sales were still 13 per cent above where they stood in May 2024, just before the Bank of Canada made its first interest rate cut in June. 

In fact, the fourth quarter was among the strongest in the past 20 years (excluding the pandemic), showing the resilience of the Canadian housing market even amid affordability challenges and economic uncertainty.

A supply story, not a demand story

The narrative driving December’s cooling wasn’t a lack of buyers—it was a scarcity of homes for sale. Nationally, new listings fell 1.7 per cent month-over-month, marking the third consecutive decline after a September surge. 

The result? A market where potential buyers found themselves facing limited options, even as affordability began to improve. Faced with this challenge, many buyers may have pushed their purchase to Spring 2025, which fuelled CREA’s belief in a “pent-up demand” scenario in the year’s first quarter. 

The bigger question on my mind is whether or not we could see a “pent-up supply” scenario as well, given the market is facing a few key factors:

• The impact of a trade war (Bank of Canada is predicting as much as a -6 per cent impact)
• Rising unemployment (albeit surprisingly strong in December)
• A change in government that promises less government jobs and spending
• Increasing purpose-built rental supply competing with investors
• Historically high jump in supply from completions in 2024 and 2025
• A record number of mortgages renewing at higher interest rates 
• To me, the pent-up supply argument could be stronger than the one for pent-up demand.
  
  

Absorption is normal, not “strong” 

The national sales-to-new listings ratio, a key indicator of market balance, eased back to 56.9 per cent in December from a 17-month high of 59.3 per cent in November. For context, this figure hovers near the long-term average of 55 per cent, reinforcing the idea that we’re still in a relatively balanced market. Yet, with inventory levels well below historical norms—128,000 properties listed nationally, compared to a long-term average of 150,000—buyers remain at a slight disadvantage.

Affordability: A fragile silver lining

One of the more optimistic takeaways from CREA’s December data is the indication of modest improvements in housing affordability. Mortgage payments as a percentage of income (MPPI) have begun to decline, supported in part by the Bank of Canada’s interest rate cuts earlier in the year. This relief has allowed more buyers to consider entering the market, particularly in regions where prices have stabilized.

However, this silver lining comes with caveats. The national average sale price rose 2.5 per cent year-over-year to $676,640, and the MLS HPI edged up 0.3 per cent month-over-month. While these price increases are smaller than those seen in previous years, they could still erode the modest affordability gains if household incomes do not keep pace. In short, any improvement in affordability remains precarious.

Adding to the uncertainty are broader economic pressures. Rising unemployment and potential government hiring cuts loom as risks that could dampen affordability this year. These factors may offset the positive effects of declining mortgage payment costs, particularly if interest rate cuts slow or stall.

The forecast remains uncertain: will sustained rate reductions and stable home prices bolster affordability, or will economic pressures push it further out of reach for many Canadians? For now, the improvements in affordability offer a glimmer of hope, but the coming months will reveal whether that hope is sustainable or fleeting.

The role of inventory in 2024’s narrative

A closer look at inventory trends highlights why 2024’s market defied expectations in certain months while tapering off in December. After peaking in September, new listings steadily declined over the fall, creating a bottleneck that frustrated buyers eager to capitalize on improved affordability. By December, there were just 3.9 months of inventory on the market—a slight increase from November’s 3.6 months but still well below the long-term average of five months.

This constrained inventory helped keep prices relatively stable, even as sales activity slowed. Sellers, wary of accepting lower offers, chose to hold firm or delay listing altogether, contributing to a stalemate in the market. This dynamic was particularly evident in urban centers like Metro Vancouver, where the market displayed modest stability with a 0.7 per cent month-over-month price increase and steady demand. The limited flexibility in prices on both sides reflects the cautious behaviour of buyers and sellers alike, highlighting the ongoing challenges of navigating a market shaped by tight inventory.

Spring 2025: The perfect storm for a demand surge?

Looking ahead, spring 2025 could mark a turning point. As snow melts and sellers bring new properties to market, demand is expected to unleash in a big way. Historical patterns suggest that real estate springs to life earlier than anticipated, and this year should be no different. 

CREA anticipates a notable uptick in activity for 2025, with an estimated 532,704 residential properties expected to change hands through Canadian MLS—a substantial 8.6 per cent jump over 2024. Shaun Cathcart, CREA’s senior economist, predicts that the anticipated bottoming out of interest rates will encourage more sellers to list their homes, further fueling the surge in activity.

The market conditions brewing this spring could create opportunities not seen in years, particularly if affordability continues to improve.

How interest rates shape the 2025 outlook

Interest rates remain the wild card. The Bank of Canada’s decision to cut rates in June 2024 provided a much-needed boost to affordability, but further reductions will be critical to sustaining momentum. Lower interest rates could not only draw more buyers into the market but also encourage sellers to list properties that were previously held back due to unfavourable market conditions.

However, the timing and scale of rate adjustments will play a pivotal role. A delay in cuts could dampen the anticipated spring surge, while aggressive reductions could reignite fears of another housing bubble. Policymakers will need to strike a delicate balance to support market stability without overcorrecting.

The long road to balanced housing

Despite the promise of greener pastures, structural challenges in the Canadian housing market remain unresolved. Inventory levels are still below historical averages, and the gap between buyer expectations and seller realities shows no signs of closing quickly. 

Adding to these challenges, recent announcements regarding reductions in immigration targets could have a significant impact on housing demand. Canada has relied heavily on immigration to drive population growth, which in turn fuels housing market activity. With immigration levels curtailed, the anticipated surge in demand may soften, potentially easing pressure on housing supply but also creating uncertainty for developers and long-term market stability. Lower immigration could temper price growth in some regions, but it also risks stalling construction projects and reducing economic momentum tied to new arrivals.

The chart below highlights the municipalities with the highest population changes in 2024 compared to 2023, a trend heavily influenced by the surge in international students. This demographic has significantly contributed to local rental and housing demand. Such growth may not be as pronounced in the coming years.

Source: valery.ca 

What December tells us

While December 2024 wasn’t the blockbuster end to the year some might have hoped for, it offers valuable insights into the market’s current state and future trajectory. Inventory levels remain tight but are improving, prices are stabilizing, and the balance between buyers and sellers is holding steady.

The question lingers: will the spring market deliver the long-awaited relief buyers crave, or will it usher in another cycle of rising prices? One thing is clear—2024 stands as a transitional year—neither a full recovery nor a complete correction. It offered glimpses of stability but left plenty of unanswered questions for 2025. 

The calm before the storm? Perhaps. But in Canadian real estate, the only constant is change.

As we reflect on 2024’s market, I can’t help but draw parallels to another pivotal moment in Toronto’s real estate history: the dramatic correction of the early 1990s. Back then, Toronto experienced what many considered unthinkable: a six-year decline that saw average home prices plummet by 28 per cent from their 1989 peak. The catalyst? A perfect storm of rising interest rates, recession and overbuilding that burst what was then considered Toronto’s first major housing bubble. 

That correction fundamentally reshaped the market. Properties that had been snapped up for $500,000 in 1989 were selling for $350,000 by 1996. Developers went bankrupt, leaving half-finished condominiums dotting the skyline. The term “negative equity” entered the everyday vocabulary of Toronto homeowners, as thousands found themselves underwater on their mortgages.

But if you look back on that period, the market appeared almost “flat” from about 1991 to 1996 after the steep drop. A similar trend can be observed in the chart above, which shows house prices since interest rate hikes started in 2022.

Where we’re at now

Today’s market might echo some aspects of that tumultuous period, with falling prices brought on by once-rising interest rates, perpetual affordability concerns, an election, changes to capital gains structure and more economic uncertainty, especially around unemployment.

So, it may come as a surprise to you that the market was warming up a bit in November (more sales, NOT higher prices). The reason we’re seeing more people buying houses in the Greater Toronto Area (GTA) is affordability.

Affordability is improving in Canadian real estate, and the GTA is at the forefront. In fact, housing affordability in Toronto has corrected more than any other major city in Canada according to the National Bank’s Q3 Housing Affordability Monitor.

A correction means that mortgage payment costs are decreasing as a percentage of household income. When people can afford to buy houses, they do. This phenomenon gave 2024 a relatively strong market in October and November, but December was slowed. 

The biggest support for the improvement in affordability could also be its greatest risk factor. RBC observed that growing household income significantly helped improve affordability in 2024’s third quarter. The challenge is the few key trends that could slow wage growth in 2025:

1. The unemployment rate is rising
2. The majority of job growth has come from government hiring
3. The likely winner of our election is committed to reducing the number of government employees

So, future improvements to housing affordability may come from a reduction in interest rates or house prices. In a healthy market, Toronto’s housing costs 40-50 per cent of median household income, and I expect it will get back there in time.

GTA 2024: A buyer’s market with caveats

For years, the GTA housing market felt like a relentless bidding ground, with escalating prices and scarce supply fueling a sense of urgency. However, 2024’s home sales reached 67,610—up 2.6 per cent from 65,877 in 2023—while new listings surged by 16.4 per cent to 166,121. On paper, this provided buyers with a clear advantage and more choice than they’d seen in years, hinting at a possible market correction.

Yet beneath the surface, the so-called “buyer’s market” has been far from a bargain. Despite the uptick in listings, the average selling price dipped by less than 1.0 per cent year-over-year, settling at $1,117,600 compared to $1,126,263 in 2023. Detached homes continued to command lofty prices, while condominiums —though subject to more notable price declines—still struggled to attract cost-conscious first-time buyers, many of whom stayed on the sidelines in hopes of greater interest rate relief down the road.

Monthly, there were some significant data points. Sales decreased by 1.8 per cent, while new listings and active listings substantially increased by 20.2 and 48.5 per cent, respectively. The average price saw a slight decrease of 1.6 per cent compared to December 2023, and days on market increased by 12-15 per cent.

The 16.4 per cent jump in new listings might suggest an easing of supply constraints, yet many sellers appeared hesitant to lower asking prices. Although the balanced supply-to-demand ratio theoretically favoured buyers, the minimal price drop signals seller resistance to resetting expectations. The gap between buyer hopes and market realities remained stubbornly wide.

Condominiums: A sector to watch in 2025

Of all the sectors in the GTA real estate market, the condominium sector is the one I’m really keeping my eye on. With more new condominium listings than ever before and record new supply added to the market in 2024, it shows no signs of letting up.

There are a few reasons for this. First, the Bank of Canada’s interest rate hikes made it more expensive for people to buy homes, causing some first-time buyers and investors to choose condominiums as a more affordable option. Second, the construction of new condominiums has been booming, which has added to supply on the market.

Despite the supply increase, condominium prices have not yet fallen as much as expected, probably not because demand remains strong but more because sellers have decided to lose money slowly rather than quickly. What I mean by this is the majority of new condominiums have been considered “cash flow negative” in the current market by Benjamin Tal and Urbanation. Based on my analysis, the majority are also “equity negative.” 

Source: Valery.ca Special Report

So, many sellers have set a floor price—that is, a minimum price they’d accept. If they don’t get that price, they decide to rent the unit out rather than sell it at a loss, allowing them to spread out the burden across monthly mortgage payments rather than absorbing it in one shot. 

Source: Robert Marsiglio, Realtor 

2025 predictions: Hope or more of the same?

Looking ahead, optimism for 2025 hinges on continued interest rate cuts and stable or marginally lower home prices. TRREB President Elechia Barry-Sproule expects improved market conditions over the next year, but the GTA market has a remarkable knack for bouncing back swiftly. Prospective buyers banking on continued softness may find themselves outpaced if the market rebounds.

Meanwhile, structural problems remain—congestion, supply constraints and stubbornly high prices. TRREB’s chief market analyst, Jason Mercer, emphasized that government policy reforms must address these core issues. Otherwise, the GTA’s real estate rollercoaster will continue with fleeting windows of affordability that close as quickly as they appear.

Far from a buyer’s utopia, 2024 felt more like an intermission. Yes, deals were occasionally on the table, but “affordable” remained a moving target—especially for those entering the market for the first time. The question persists: as we edge into 2025, will this pause evolve into genuine relief, or is it merely the calm before the next wave of price hikes? Only time—and possibly more interest rate adjustments—will tell.

Canada’s once unstoppable population growth is finally tapping the brakes, and the ripple effects are beginning to surface—most notably in the country’s rental markets.

In a significant shift that could reshape the dynamics of Canada’s real estate landscape, the country has recorded the highest exodus of non-permanent residents (NPRs) since the Canada Mortgage and Housing Corporation (CMHC) began tracking this data in 2021. This exodus coincides with a marked softening of rental rates across various Canadian markets, hinting at a direct relationship between the two trends.

While the federal government recently committed to reducing population growth, available data suggests this decline may have already been underway before any official announcements. A recent report published on Valery.ca outlined how population growth could be predicted by rental inflation months in advance. 

Canada’s once unstoppable population growth is finally tapping the brakes, and the ripple effects are beginning to surface—most notably in the country’s rental markets. This plan includes the first-ever comprehensive strategy to manage not only permanent residents but also temporary ones.

Immigration targets in focus

As part of the new framework, the government aims to gradually reduce permanent resident targets from 500,000 in 2024 to 395,000 in 2025. The numbers will further decline to 380,000 in 2026 and 365,000 in 2027. This deliberate scaling back is expected to curb the intense demand for housing, especially rental units, which has surged in recent years due to high levels of immigration.

Temporary residents, including international students, foreign workers, and other NPR are also significant contributors to housing demand. While precise targets for temporary residents have not been disclosed, the government’s inclusion of this group in its planning signals a more controlled approach to overall population growth. Temporary residents often cluster in urban centres like Toronto, Vancouver, and Montréal, where they compete with locals for limited rental housing. Consequently, their departure is having a profound cooling effect on these overheated rental markets.

The link between population and rent inflation

The Bank of Canada has long highlighted the relationship between population growth and rent inflation. A booming population naturally amplifies housing demand, leading to rising rents, particularly in urban centres. However, recent data paints a different picture. As we enter 2025, several sources, including The Habistat and Rentals.ca, report a noticeable deceleration in rent inflation.

According to these reports, rental inflation is beginning to stabilize due to two key factors: slower population growth and increased rental supply. This shift marks a notable departure from previous years when double-digit rent hikes were common in major cities. CMHC’s Q4 report highlights this trend, with Toronto experiencing the lowest rent growth among major regions in 2024, at 2.7 per cent, down significantly from 8.8 per cent in 2023.


Interestingly, not all experts agree on the extent of this trend. Ben Myers of Bullpen Research, for example, has observed differing patterns in specific unit sizes, given the majority of new condominium supply is smaller. The prevalence of smaller units skews the average and median data down, but illustrates that units on a per-square-foot basis are not falling as sharply as the headline data might suggest: 

Source: Ben Myers, Bullpen Research

NPR departures and cooling rental markets

Once hailed as the eternal bull case for Canadian real estate, population growth seems to be grinding to a halt. In a surprising policy flip mentioned above, the liberal government took a populist approach after years of defending its position that its population growth strategy was sustainable. 

One of the most striking elements of this narrative is the synchronicity between the departure of NPRs and the cooling of Canada’s rental markets. NPRs, who typically contribute significantly to demand for rental housing, are leaving in record numbers, reducing upward pressure on rents. This shift has provided much-needed relief for tenants, but it also raises critical questions about the future of Canada’s housing market.

For example, a significant drop in NPR numbers could lead to prolonged stagnation in rental demand, especially in urban centres that have historically relied on this demographic to absorb new rental supply. Compounding this, some of these markets are experiencing record supply. This could also challenge landlords who are already grappling with high borrowing costs and reduced cash flow, forcing some to sell or convert their properties to owner-occupied units.

What lies ahead for Canada’s housing market

As Canada navigates a new era of housing and immigration policy, finding a balance between managing population growth and sustaining economic vitality will be critical. The ongoing decline in this demographic could have ripple effects beyond the housing market, potentially slowing growth in key sectors like retail, hospitality, and education. Canada’s GDP grew substantially from record population growth in the last few years while sacrificing per capita GDP. Now, we can see the opposite impact occurring as population growth slows in the absence of economic growth—GDP could fall, putting Canada clearly in a recession in 2025.  

At the same time, this transition offers an opportunity to reassess Canada’s housing priorities. By incentivizing the development of affordable housing, supporting renters, and expanding homeownership opportunities, policymakers can address the challenges posed by a slower-growing population. Proactive adjustments to housing policy, paired with a measured approach to immigration, could mitigate affordability issues while fostering sustainable development. The unfortunate part about all of this is that it sounds great in theory, but the reality is that it’s a painful process to get to. 

Much like a construction project, you have to demolish a derelict building before you can create a new one on a new foundation. The demolition process is necessary, but not pretty. 

That’s the phase of the process we’re in now. We’re not rebuilding yet. We’re just realizing that what we built before wasn’t working – and we’re doing something about it. The decisions made today will shape the future of Canada’s real estate market for years to come.

Canadian real estate had all of the hallmarks of a great comeback story. Interest rates are falling. House prices are down from the peak. Affordability is returning to the market. The government was throwing policy at the housing problem, despite warnings from the Bank of Canada. It sounds like the setup for a great recovery.

The only question is… when do we get there?

Or, more aptly, “Are we there yet?”.

Instead of a familiar and predictable road, we’ve been left on a long and drawn out road trip. Countless familiar signs have passed us by, yielding no result. We’ve been stuck in a state of wondering, if, not when, in fact, we’d see any signs of recovery appear.

For years we’ve heard reports from the industry of “buyers on the sideline” waiting for some factor to change in the real estate market equation. It would appear that the factor is whether or not prices are going up or down.

“Buy the dip”

Is it possible you might see a rush of buyers trying their hand at the seemingly impossible task of buying the bottom of the market? The age-old advice about “time in the market, not timing the market” seems to be ringing in my ear. At a minimum, the idea might be “buying the expletive dip”, as popularized by Wall Street Bets. Since we don’t have an online community of options-trading degeneracy in Canada, we focussed our speculative fever on the housing market, until we couldn’t any longer.

And so, it appears when people said they’re waiting to see the “dip” or the “bottom” of the real estate market, they might have been looking in the rear-view mirror. This isn’t to say that the bottom is “in” per se. There just seem to be a lot more buyers after three months of consecutive growth in price and volume than there were during three months of declining price and volume.

This is the ironic part about the whole “market timing” thing. If you want to bottom-tick the market, you have to be buying on the way down. If you’re the buyer submitting below-market offers and pulling sales prices down, you create the dip— you don’t buy the dip.

You create the market, you don’t time the market.

By the numbers: Recovery, or relief rally?

Until last month, data hadn’t really indicated even the slightest chance at recovery. September appeared out of character, with the typical back-to-school rush surprisingly muted against the backdrop of the US election, breaking “fall market” seasonal norms to the downside. Staying true to this new and contrarian character, Canadian real estate now seems to be breaking seasonal norms to the upside, heading into November, a month when the market is typically slowing down toward the holiday season.

Should we see sustained upward pressure on the market heading into December, it would be reasonable to imagine that the market is seeing a resurrection of volume from lower rates, increased buying power, and optimism around new mortgage policy.

Increased buyer activity pushes sales higher

Source: CREA, Valery.ca 

According to CREA, national home sales climbed 2.8 per cent in November compared to October, marking the second consecutive month of gains and a cumulative 18.4 per cent rise since May. This jump comes after months of subdued activity earlier in 2024, which was largely blamed on lingering “higher for longer” interest rates.

With the Bank of Canada now slashing rates at a recession-ready pace, sidelined buyers have apparently been pulled back into the market, and the numbers show they’ve arrived in droves.

Not surprisingly, activity was strongest in Canada’s usual real estate powerhouses—Greater Toronto, Metro Vancouver, Calgary’ and Montreal. Smaller cities in Alberta and Ontario also reported double-digit increases in sales, indicating a broad-based uptick. Ontario seems to be back to its former glory of taking nearly half of the monthly dollar volume of sales. However, this surge in activity raises a critical question about whether it represents a genuine recovery or just another temporary spike driven by policy tweaks that artificially boost demand in an attempt to soften the blow of recession and unemployment in 2025. 

Realistically, this market looks a lot more like a typical year (see 2016 to 2019 above) but it feels high relative to last year’s lows, and low relative to the pandemic’s highs. 

Source: CREA, Claude, Valery.ca 

Sellers hold the upper hand

For those looking to sell, the market continues to tilt firmly in their favour. The sales-to-new-listings ratio (SNLR), which measures market balance, rose to 59.2 per cent in November. That’s a significant jump from the 52 per cent to 53 per cent range seen earlier in the year, signalling a tightening market. With fewer new listings coming to market (down 0.8 per cent month-over-month), buyers are left to compete for an ever-shrinking pool of homes.

This imbalance is further reflected in the months of inventory metric, which fell to just 3.7 months nationally—the lowest in over a year. For context, a balanced market typically has 4 to 6 months of inventory. The current figure underscores the fact that supply simply isn’t keeping up with demand, making conditions increasingly competitive for buyers.

Prices “rise”… or did they?

Source: CREA, Valery.ca 

November saw the first notable increase in home prices in nearly 18 months. The National Composite MLS Home Price Index (HPI) rose 0.6 per cent from October, while the actual national average sale price jumped by 7.4 per cent compared to November 2023. These price increases suggest that the demand surge is starting to put upward pressure on home values, particularly in urban centers and desirable smaller markets.

However, the market still shows early signs of recovery rather than runaway growth. While it’s easy to celebrate any price growth, the long-term trend still looks like the “flat market” I’ve been droning on about for the last few years. The HPI remains 1.2 per cent lower year-over-year, highlighting that despite rising demand, the market has not fully rebounded from the downturn caused by the interest rate hikes of 2022 and 2023, which reduced affordability and buyer confidence. This ongoing recovery remains fragile, with the market still vulnerable to external factors. Future rate changes, policy shifts, or economic uncertainty could easily disrupt the momentum.

High supply, high stakes

Source: CREA, Valery.ca 

CREA seems to feel that the inventory situation reveals a chronic problem: Canada’s housing supply continues to fall short of demand. By the end of November, there were just over 160,000 properties listed for sale nationally. While this is 8.9 per cent higher than a year ago, it remains well below the long-term average of 178,000. It seems the industry wants us to interpret this as a sign that we have a structural supply deficiency. On the contrary, it could also be interpreted as a lot of room to grow.

With all this considered, this is still the highest supply environment we’ve seen since the beginning of the pandemic, with a clearly visible and steep upward trend in active listings each year since the rate hiking cycle began.

Looking ahead, the fate of the Canadian real estate market may hinge heavily on the performance of the upcoming spring market. While recent momentum and lower interest rates have provided some optimism, several headwinds could still derail the recovery.

The traditional spring market typically sees the highest volume of transactions and often sets the tone for the rest of the year. However, mounting concerns about a potential recession, declining population growth rates, and rising unemployment could dampen buyer enthusiasm. These economic pressures might outweigh the positive effects of lower borrowing costs and increased affordability.

The key question remains whether the current momentum can build enough steam to overcome these challenges. Early indicators from December and January activity will be crucial in gauging whether this recovery has staying power or if it’s merely a temporary response to policy changes and rate cuts.

Final thoughts

It’s hard to shake a sense of deja vu. Time and time again, interest rate cuts are rolled out as a quick fix and a perceived boost to the housing market, only to exacerbate the underlying issues and kick the can down the road.

Yes, lower rates make borrowing more affordable in theory, but they do not solve the core disparity between income and house prices, negating the benefit for many buyers. Relaxed mortgage rules might help some secure financing, but they also prop up demand in a market already starved for supply.

For first-time buyers, the dream of homeownership remains elusive. Rising prices and dwindling inventory create significant challenges, forcing them to compete against wealthier buyers or investors. While sellers and existing homeowners may take comfort in the rising value of their properties, the broader reality is less optimistic, with a housing market that continues to deepen the divide between the haves and have-nots.

The 7.7 per cent month-over-month increase in home sales activity is a striking development, especially considering the more modest gains of 1.9 and 1.3 per cent in September and August, respectively.

This surge in activity presents a complex landscape with both opportunities and challenges for buyers, sellers and real estate professionals. While we’re seeing a significant increase in demand (measured by sales) we’ve also observed an equally large jump in supply (measured by new listings).

For sellers, this surge in activity is undoubtedly positive news. The increased demand could lead to quicker sales and price growth in the absence of supply. However, the opposite could be true, if a “pent-up supply” scenario is pending among CMHC’s recent reports that mortgage delinquencies will be rising in most cities across Canada.

Real estate professionals may also benefit from this uptick, with more transactions likely leading to increased commissions and business opportunities.

However, buyers face a more challenging landscape. While lower interest rates have improved affordability, the sudden increase in market activity could lead to increased competition and diminishing affordability. 

Against the backdrop of rising unemployment, the market may be quick to exhaust any potential gains from cheaper interest rates, 30-year amortizations and $1.5-million insured mortgages coming in December. This situation underscores the importance of being well-prepared and acting decisively in a more active market.

Supply and demand balance

This balanced growth in both supply and demand has caused the market to present in a somewhat unpredictable fashion. We have a sales-to-new-listings ratio rising rapidly, and months of inventory falling to levels not seen since summer 2023.

The interplay between supply and demand is crucial in understanding the market’s direction. Despite the 3.5 per cent month-over-month decline in new listings in October, the quarterly trend is up, and the number of active listings remains 11.4 per cent higher than last year. This increase in supply is a positive factor for buyers, offering more choices and potentially tempering price growth.

The tightening of the sales-to-new listings ratio to 58 per cent indicates a shift towards a more balanced market. This equilibrium could benefit both buyers and sellers, creating a more stable environment for transactions. However, with inventory levels at 3.7 months—the lowest in over a year and approaching seller’s market territory—we may see upward pressure on prices if this trend continues into the spring market.

Price trends and regional variations

The national average home price of $696,166 in October, up 6 per cent year-over-year, reflects a market that is gaining momentum but not overheating. The marginal 0.1 per cent month-over-month decrease in the MLS Home Price Index suggests stability, which can be reassuring for buyers and sellers. The market has been basically trading sideways and grinding down slightly since the big drop after rate hiking started.

Economic implications and future outlook

The real estate market’s performance is closely tied to broader economic factors. The series of interest rate cuts by the Bank of Canada, totalling 125 basis points, has played a significant role in stimulating market activity. 

This monetary policy approach aims to support economic growth, but it also raises questions about long-term inflation and housing affordability. At this point, unemployment is a greater risk to the housing market than mortgage renewals, according to RBC’s recent analysis.

Looking ahead, CREA Senior Economist Shaun Cathcart suggests that the October numbers might be a preview of what to expect in 2025. With mortgage rates potentially reaching their expected lows next spring, we could see sustained market activity. However, this projection comes with caveats:

• Supply constraints: The availability of new listings will be crucial in maintaining market momentum. A lack of supply could lead to price increases and affordability issues.
• Economic uncertainty: Factors such as employment rates, inflation and overall economic growth will continue to influence the housing market.
• Regional disparities: The varying performances across different regions of Canada highlight the need for localized strategies and policies.

For buyers, the current market presents a mixed picture. While increased activity might mean more competition, the still-elevated supply levels and potential for further interest rate cuts offer opportunities. Buyers should be prepared to act quickly but also remain cautious about overpaying in a potentially heating market.

Sellers are in a favourable position, with increased demand and stable prices. However, they should be mindful of supply trends, especially ahead of a year with a record number of mortgages renewing at higher interest rates – there is a real potential for pent-up supply to hit the market, increasing competition swiftly.

A lukewarm attempt at recovery seems to be appearing in Toronto’s real estate market. For the first time in a while, it seems that demand has been able to outgrow supply. 

According to October data from the Toronto Regional Real Estate Board, active listings are still up significantly (25.3 per cent) but sales are up more (44.4 per cent).

Source: TRREB

I won’t dispute that the general sentiment in the real estate market in the Greater Toronto Area does seem to be warming up a little, with home sales up compared to October of last year. Frankly, I’d be very concerned if we didn’t see some warmth, given we’ve seen significant advantages given to buyers since then, including:

• Interest rates coming down 125 basis points
• Amortizations will be extended to 30 years, increasing buying power by 8 per cent
• Insured mortgage cutoff increasing from $1-million to $1.5-million
• Neighbourhoods have been upzoned to four units
• The government has created incentives for owners who want to add units

Warm, not hot

I deliberately chose the word “warm” because it has been pretty cold all year, and I’m not ready to describe it as “heating up.” In the past few months, new listings were up significantly, and the heightened pace of supply caused active listings to accumulate more quickly against suppressed demand. 

This month, new listings are only up 4.3 per cent compared to last year, which could dramatically slow the pace at which active supply accumulates. If sales remain strong toward the end of the year we could see some supply get absorbed and momentum build for a more pronounced spring market. As mentioned in earlier notes, rate cuts seem to be more of a pent-up supply story than a pent-up demand story so far—with sellers timing the “heating” effect just as much as buyers.

Buyer’s vs seller’s market

Homes are still selling more slowly than they did last year, now spending 28 to 30 per cent more time on the market compared to last year. This means that supply takes longer to get absorbed, and the market will definitely need to speed up its absorption rate if it hopes to see a seller’s market in the next spring. To me, our current reading on “days on market” metrics indicates a market that is balanced, or even leaning in favour of buyers, rather than sellers.

Condos

No supply/demand imbalance has been more pronounced than the 416 condo sector. As a result, looking at the 416 condo sector can often tell us a lot about the market. In the past few months, year-over-year growth in condo sales has been relatively low or negative, but in October, condo sales posted pretty significant gains. 32.2 per cent more 416 condos sold this October than last October, and similarly, 35.9 per cent more 905 condos sold. 

It is reasonable to assume that the returning affordability brought on by falling interest rates and falling condo prices has helped make these units more attainable for entry-level buyers, downsizers, and investors. Toronto condo prices have fallen 1 per cent since last year (a drop of about $7,200), while 905 condos have fallen 4.3 per cent since last year (a drop of about $27,000).

Source: TRREB

Detached homes

Detached homes have been a different story altogether. In the 416 area, detached homes are up 4.4 per cent, likely supported by upzoning to 4 units, and anticipatory demand from increased insurable mortgages and longer amortizations ahead. The knock-on effect appears in increases we’re seeing in semi-detached and townhouse products, up 3.3 per cent and 1.3 per cent respectively.

905 versus 416

This month’s data really paints the picture that we’re seeing a re-urbanization of demand. With a re-opening workplace and Toronto’s traffic being ranked third worst in the world, it is not surprising that those who suburbanized into the 905 during the pandemic era may be reconsidering a 416 lifestyle.

This trend is most visible when looking at the sale-to-list-price ratio (SP/LP) in suburban areas, like Simcoe County and Peel Region, versus urban 416 areas:

• (905) Halton Region – 98 per cent
• (905) Peel Region – 98 per cent
• (416) City of Toronto – 100 per cent
• (905) York Region – 98 per cent
• (905) Durham Region – 100 per cent
• (705) Dufferin County – 98 per cent
• (705) Simcoe County – 97 per cent

From my view, the sale-to-list-price ratio acts like a bid/ask spread indicator—where a narrower spread indicates a more efficient and liquid market. In real estate terms, a sale-to-list price ratio closer to 100 per cent suggests a more balanced market where buyers and sellers are in closer agreement on property values. When this ratio is significantly below 100 per cent, it often indicates a buyer’s market where properties are selling for less than their list price. Conversely, when it’s above 100 per cent, it typically signals a seller’s market where properties are selling for more than their asking price due to high demand.

Looking at the data, we can see that the City of Toronto and Durham Region are showing the most balanced markets with ratios at 100 per cent, while other regions are slightly favouring buyers with ratios between 97 and 98 per cent.

Points of concern

There are a few main vulnerabilities that do exist in Toronto’s market at this point that are worth noting heading into the spring market:

1. The stock market is at all-time highs, and a negative wealth effect caused by declines in that area could create issues.
2. The federal government has committed to reducing population growth and potentially reducing the population by 0.2 per cent, which certainly mutes the impact of the evergreen bull case for Toronto real estate, which is that demand will always outpace supply.
3. Unemployment is rising in Canada, as are mortgage delinquencies. These are typically leading indicators of further distressed supply and can become a headwind against house price growth.

Overall, my outlook is that we’ll see a reasonably strong spring market with policy introductions and momentum from the fall market. Barring any major changes to the economic picture, spring 2025 should look more like a typical spring market we’ve seen in years like 2018 and 2019.

The Canadian real estate market stands as a cornerstone of the nation’s economy, reflecting not only economic conditions but also societal shifts and demographic patterns.

Currently, the state of our market displays a surprising resilience against various challenges, including a looming recession, record interest rate hikes and economic stagnation reminiscent of Japan’s “lost decade.”

Unforeseen strength against recessionary pressures

Despite looming recessionary pressures, the country’s real estate market has defied expectations, showcasing stability heading into the spring market.

House prices in Canada were unchanged since last month, but are still down 2.3 per cent from three months ago, and down 4.6 per cent from six months ago. When looking at a more long-term context, the house price index (HPI) tells us that prices are up 1.2 per cent since the same month last year, and up 13.1 per cent since three years ago.

When it comes to house prices in the shorter term, it’s understandable why consumers experience confusion around the market. Average price is trending up on a month-over-month basis, yet the MLS HPI benchmark is trending down:

On top of that, 30 markets saw a decrease in HPI value in Canada, while 24 markets saw a monthly increase in HPI and two markets remained unchanged.

So, more than half of markets fell in value, despite CREA’s headline stating, “Canadian home prices see sudden end to declines in advance of spring market.” While the declines may have stopped, it’s not all sunshine here. 

Usually, the market would be growing steadily in the spring, with prices growing from January to May in a typical year.

Largest monthly home price changes

Below are the biggest monthly increases in house prices, measured by the HPI:

1. Simcoe & District +4.3 per cent
2. Quebec CMA +3.8 per cent
3. Regina +2.6 per cent
4. Saskatoon +2.5 per cent
5. Winnipeg +1.5 per cent

Five Ontario real estate markets saw the biggest drop in house prices, measured by the HPI:

1. Woodstock-Ingersoll -3.5 per cent
2. Windsor-Essex -2.3 per cent
3. Niagara Region -1.7 per cent
4. North Bay -1.7 per cent
5. Cambridge -1.7 per cent

On a provincial basis, the biggest annual increases in average price can be seen in Alberta, New Brunswick and Newfoundland and Labrador. Not coincidentally, these markets have also been some of the biggest recipients of Ontario residents fleeing the province for more affordable markets.

Record population growth has played a pivotal role in bolstering housing demand, underpinning market activity even amid economic headwinds. The growth and interprovincial migration patterns have contributed to sustained housing demand, countering downward pressures that typically accompany recessions.

Record interest rate hikes and market response

The Bank of Canada’s unprecedented series of interest rate hikes has posed a significant challenge to the real estate market, traditionally sensitive to fluctuations in borrowing costs. However, the market’s resilience has been notable, especially in entry-level product and affordable markets outside of Ontario and British Columbia. 

While the rate hikes have tempered demand to some extent, particularly in overheated markets, the overall impact has been mitigated by other factors, including demographic trends and supply constraints.

Economic stagnation and its impact on housing

Canada’s GDP per capita stagnation, reminiscent of Japan’s “lost decade,” presents a sobering backdrop for the real estate market. Despite nominal economic growth, when adjusted for population, GDP per capita has declined to 2016 levels — raising concerns about long-term economic prospects and affordability challenges.

While this stagnation may ordinarily dampen housing market sentiment, other factors such as population growth and low unemployment rates have offset some of the negative effects.

The current state of the country’s real estate market calls for cautious optimism tempered by awareness of underlying challenges.

While the market has demonstrated resilience against recessionary pressures, record interest rate hikes and economic stagnation, vulnerabilities remain. Affordability concerns persist, particularly in major urban centres, and there is a need for policymakers and industry stakeholders to address these issues proactively.

Our market’s resilience against a backdrop of economic uncertainty is both surprising and noteworthy. Factors such as record population growth, adaptability to interest rate hikes and demographic shifts have contributed to this unexpected strength.

However, challenges remain, including affordability constraints and the specter of economic stagnation. As we navigate these uncertain waters, careful monitoring of market indicators and strategic policy interventions will be essential to ensure the long-term health and sustainability of Canada’s real estate sector.

In the ever-turbulent waters of the Greater Toronto Area (GTA) housing market, February 2024 emerged as a month where hope springs eternal for both buyers and sellers — or so the narrative goes.

Small sales and listings boost last month

According to the latest press release from the Toronto Regional Real Estate Board (TRREB), there’s been a quaint uptick in home sales and listings on both an annual and monthly basis, with selling prices making a shy nod upwards compared to the year prior.

This is ostensibly buoyed by population growth and what’s described as a “resilient” regional economy — phrases that seem to gloss over the ongoing saga of individuals grappling with the reality of higher borrowing costs, a souvenir from the Bank of Canada’s rate hikes. 

With a market allegedly looking forward to rate cuts, Wednesday’s hold from the Bank of Canada could be a bit of a punch in the gut. Furthermore, the governor’s hawkish tone during their press release and a revisiting of their concern that rates could heat up the housing market seems to make it clear that rate cuts are not coming anytime soon. 

Can the strength of the spring market survive without rate-cut optimism? Let’s look at the data.

Demand (home sales)

5,607 homes sold in the GTA on TRREB’s MLS system in February, a 17.9 per cent increase from a year prior. Coincidentally, this is almost exactly in line with TRREB’s prediction that we’d see an 18 per cent jump in home sales volume this year, or an expected increase from just over 65,000 sales in 2023 to 77,000 sales this year.

Demand looks stronger for product under $1 million, which is the cutoff for mortgage insurance products like CMHC. As a result, it seems like mortgage insurance has cemented the price floor in many markets, by concentrating buying.

Supply (listings)

February observed a larger-than-usual uptick in new listings. As the chart below shows, listings typically jump up from January to February each year. This year’s jump was larger than last year, though smaller than the strong spring markets of 2021 and 2022.

Active listings are at their highest point in February since the pandemic began, which shows we could be returning to a more long-term supply and demand balance compared to the volatile and imbalanced markets we saw over the past few years.

Price

House prices jumped sharply in February, which is typical in the spring market. Prices usually grow from January until May, then settle or fall throughout the summer. That being said, this jump was the steepest increase we’ve seen in price since 2022’s spring market.

Is Canadian real estate in recovery mode yet? Only time will tell, but this year is off to a decent start for those hoping that is the case.

Based on dollar volume (total value of all real estate sold), we just saw the third-strongest January on record. But, it’s still well behind the record-setting years of 2021 and 2022 — peaks we may never see again for many years:

Source: realist.ca, CREA

Recovery in sales but still under-average

The Canadian Real Estate Association (CREA) reports a recovery in home sales in early 2024, following a weaker second half of 2023. January saw a 3.7 per cent increase in sales, continuing from December’s 7.9 per cent rise.

Despite these gains, sales are still below the 10-year average by about 9 per cent. This is unsurprising as January sales are typically below the average, but they’re trending up pretty quickly toward it and could break the streak below the line this February.

Market growth from waiting first-time buyers

The market shows signs of tightening, with increases in competition among buyers being reported by professionals across the country. That being said, prices in rapidly recovering areas continue to trend lower based on CREA’s assessment, and this seems to be in line with what market anecdotes are telling us.

Much of the growth is coming from first-time buyers who were sidelined during the frenzied market of the last few years. It would stand to reason that we’re seeing an uptick in price in more affordable markets:

• Yukon: + 3 per cent
• Nova Scotia: + 4 per cent
• Alberta: + 5 per cent
• New Brunswick: + 5 per cent
• Prince Edward Island: + 6 per cent

Spring opportunities for sellers looking to upsize

However, prices are falling by 4 per cent in Ontario, and prices did not grow at all in British Columbia, where affordability is some of the worst in Canada.

Source: realist.ca, CREA

This could create a good opportunity in the spring market for sellers looking to upsize upon mortgage renewal for a few reasons:

1. The house they’re selling has clear excess demand from CMHC-insured first-time homebuyers.

2. Demand for larger products has been muted by interest rates, meaning there is often less competition in the higher price ranges.

3. They’ll be buying and selling in the same market, so their risk exposure to volatility or further upward or downward price movements is reduced by them selling to lock in prices. This means most upsizers feel they’re only risk-exposed to the difference in value between the asset they’re selling and the asset they’re buying.

4. If they’re facing a mortgage renewal, they’ll be absorbing the increased capital cost regardless of their existing mortgage, so their consumer psychology tells them they’re functionally only paying the increased capital cost on the difference mentioned above in value, as well.

This is generally how price-floor support and CMHC policy can push recovery through the market. As first-time home buyers purchase entry-level supply, existing owners sell and realize the excess demand in that market.

These non-owners are now faced with the decision between a rental market growing at record rates, per CMHC’s most recent report, or entering a volatile and scary housing market.

As we know from Bank of Canada statistics, close to half of all homebuyers are first-timers, which makes it clear why we’re seeing a volume resurrection in the lower end of the market.