Canadian Real Estate Weakens As People Flee Toronto & Vancouver: BMO

Canadian Real Estate Weakens As People Flee Toronto & Vancouver: BMO

Canadian real estate didn’t get a boost from a recent rate cut. That’s good news, according to BMO’s latest research note. The bank broke down CREA’s June update on existing home sales, and believes this is what the Bank of Canada (BoC) would like to see. Cheaper credit didn’t suddenly spark exuberant demand, potentially clearing the way for more rate cuts. However, BMO warns the data is driven by just one major factor—people fleeing the country’s largest markets, Toronto and Vancouver. This same trend is also helping to boost prices in traditionally affordable regions, creating a split market driven by the same issue.  


Canadian Real Estate Prices Slip Lower, But Haven’t Moved Much


Canadian real estate prices moved slightly lower last month. The unadjusted benchmark price of a typical home fell 0.1% (-$800) to $733,300 in June. This represents a 3.1% (-$23,300) decline compared to the same month last year. Not much of a move by either measure, but not what sellers were hoping to see. The industry anticipated activity would pick up post-Bank of Canada (BoC) rate cut, but only sellers got that memo.


 “All told, the resale housing market was subdued across much of the country in June, with little major response to the initial rate cut of this cycle,” explains Rob Kavcic, senior economist at BMO.


He adds, “For the Bank of Canada, this will be considered good news as the market is not standing in the way of further easing at this point.”


Canadian Home Sales Are Unusually Weak Despite Rate Cuts


If no price growth is good news for the BoC, slow home sales are about to make their year. Only 45.6k homes sold in June, a whopping 9.4% lower than a year ago. As stated, it’s a big surprise to many sellers and the industry that hoped rate cuts would drive mortgage borrowing. However, cheaper leverage was already available, preventing any real change to available leverage. 


Overnight rate cuts were so highly anticipated, bond markets already reflected the easing months ago. “Simply put, with fixed mortgage rates already well below variable, and very few borrowers using variable-rate products, these early rate cuts aren’t having a big impact,” Kavcic explains.   


Canadian Real Estate Sellers Are Trying To Move A Lot of Inventory


Clearly disappointing to sellers who planned to list into a wave of new buyers. There were 87.7k new listings in June, about 2.6% more than last year. Fewer sales and more new listings helped to push the sales to new listings ratio (SNLR) down to 52%, a decline of 7.1 points over the same period. Demand is now smack in the middle of a balanced market. 


“In some markets, the outstanding inventory of homes for sale has rarely been higher and, while location/
type matters a lot, it’s fair to say that a gradual building of resale inventory continues. The months’ supply of homes for sale sat at 4.2 [months] in June, or just off the highest in four years,” says Kavcic. 


People Are Fleeing Toronto & Vancouver, Skewing All Markets


Canadian real estate demand is balanced at the national level, meaning price, sales, and inventory are all in harmony at this current time. Balance at the national level can mean a lot of things at a more local level, and it’s not always ideal. In this case, some markets are seeing demand overheat, driven by flight from more expensive markets where demand is now ice cold.


Kavcic found that buyers are looking for more affordable regions, while traditionally hot markets are filling with sellers. “…there are clear disparities in market conditions across the country and by segment,” he says. 


The Prairies were left out of the low-rate boom that started in 2020, but they’re catching up fast. BMO notes that Calgary is now the strongest market in Canada, with an SNLR of 79%, launching annual price growth 8.7% higher. Similar trends are beginning to emerge in cities like Edmonton, Regina, and Winnipeg—all of which are seeing positive annual price growth. 


Similar strength was also observed in parts of Atlantic Canada and Quebec. “In most cases, this is a reflection of where Canadians can find affordability and, as a result, where they are moving,” says Kavcic. 


“On the other end of that trade lies Vancouver and Toronto—that is, unaffordable markets that are witnessing people leave.” 


Despite a population boom, both regions have seen a significant decline in sales. Both markets also saw valuations stretch prior to rate cuts in 2020, only experiencing minor bumps in contrast to surrounding markets. Rather than stretching their budgets, young adults and immigrants are now exploring greener pastures.