The spring home buying season never really blossomed this year.

May figures from the Canadian Real Estate Association suggest buyers and sellers have been taking a “wait and see” stance.

Sales in May dipped 0.6% from April and are down 5.9% from a year earlier. Prices dropped 4.0% year-over-year leaving the national average home price at $699,000.

CREA’s preferred measure, the National Composite MLS Home Price Index, came in 2.4% below May 2023.

The number of new listings was also flat with an increase of just 0.5%. However, inventories are at a five-year high.

CREA used the words “sleepy” and “uneventful” to describe the month and speculated that buyers and sellers were waiting for the Bank of Canada to implement interest rate cuts. That cut did come on June 5^th and the realtors are hopeful it will stimulate renewed activity.

A recent survey of home buying intentions by the real estate website Wahi suggests that while high rates may be keeping buyers out of the market they are not driving sales. Just 11% of respondents who said they will be selling within the next five years are doing so because of financial strain.

The key reason people plan to put their homes on the market is size.

Thirty-seven percent said they want to downsize and 25% said they are looking for a bigger place. Of those looking for a smaller home nearly 70% are more than 54 years old. On the other side, 94% of those looking to upsize are between 18 and 54 years old.

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The last significant economic report before this week’s Bank of Canada interest rate announcement is in.  It effectively knocks down the last barrier to a, much hoped for, rate cut.

Gross domestic product – the value of all goods and services produced by the economy – for the 1^st quarter of this year grew by 1.7%.  That is significantly lower than the central bank’s forecast of 2.8% growth, and analyst projections for a 2.2% increase.

GDP growth for the 4^th quarter of last year saw a major downgrade to 0.1% from 1.0%.

Statistics Canada’s GDP report builds on several months of data showing inflation has fallen inside the Bank of Canada’s target range of 1.0% to 3.0% for both the Consumer Price Index (headline inflation) and core inflation, which is the Bank’s preferred measure.

It is widely accepted that the central bank’s high interest rate policy has done what was needed to slow the economy, allowing supply to catch up with demand.

There are reasons the Bank could hold off on a rate cut until July:

• There has been no clear message from the Bank that a cut is actually coming.
• The Bank is still wary about mistakes it made in implementing rate hikes, that saw it lose control of inflation 2-and-a-half years ago.
• A fear that housing prices will spike as rates drop could see the Bank delay cuts until after the spring buying season.
• Currency concerns will likely keep the Bank from cutting more aggressively than the U.S. Federal Reserve.

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The latest Statistics Canada inflation numbers have brought some more good news for consumers and anyone looking for interest rate relief.

The annualized rate of inflation in April dipped again, falling to a three-year low of 2.7%, down from 2.9% in March.

Two key components in the inflation calculation saw slowdowns last month: shelter costs, and food.  Shelter costs – which include mortgage costs and rents – increased by 6.4%, a 1 basis-point decline from March.  Grocery price inflation eased to 1.4%, a drop of 5 basis-points from March.  Gasoline prices, however, jumped 6.1%, which held the overall inflation rate somewhat higher.

Encouragingly, so-called, core inflation – which strips out prices for volatile items like food and fuel – also continued to decline.  This is the measure of inflation the Bank of Canada uses when making its interest rate decisions.  April’s average of the core inflation measures came in at 2.75%, down from 3.05% the month before.

Both headline and core inflation now fall inside the Bank’s 1.0% to 3.0% target range.

Many market watchers now believe the BoC will likely go ahead with an interest rate cut at its next meeting on June 5^th.

There is one significant report that will arrive between now and then.  The latest Gross Domestic Product numbers will be released on May 31st.

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The spring home-buying season is off to a soft start.  The latest figures from the Canadian Real Estate Association show both sales and prices dipped, while inventories rose in April.

The numbers suggest a move toward better stability in Canada’s notoriously unhinged real estate market, and a move away from seller dominance.

April sales slipped 1.7% compared to March, but sales are up 10% compared to April 2023.  The national average price of a home remained flat month-over-month, but is down 1.8% compared to a year earlier, at about $703,500.

This comes as the number of new listings rose 2.8% m/m.  CREA notes that, when the rise in new listings is combined with slower sales it amounts to a 6.5% increase in the number of properties on the market.

The national sales-to-new listings ratio eased to 53.4%. The long-term average is 55%.  A ratio between 45% and 65% is generally considered balanced.

Affordability in Canada’s real estate market remains a key concern.  Many market watchers believe anxious buyers are thinking about the longer term, and waiting for interest rates to start falling before making their purchase.

In the meantime, those who can afford to get into the market have a larger range of home choices and renewed opportunities to negotiate terms.

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Anyone who is eager for the Bank of Canada to start lowering interest rates will probably be happy with what Governor Tiff Macklem has been saying.  But it comes with a caveat.

Appearing in front of the Commons Finance Committee, last week, Macklem told MPs the central bank is getting closer to cutting rates as inflation is showing signs of going down and staying down.

“The message to Canadians is, we are getting closer. We are seeing what we need to see and we just need to be confident that it will be sustained,” Macklem said.

The Bank focuses on “core inflation”, which strips out items like food and fuel which can be subject to volatile price swings.  That measure is now inside the Bank’s 1.0% – 3.0% target range.  Headline inflation is also inside the target range at 2.9%.

The housing market tends to get a lot of attention during interest rate discussions and Macklem concedes that the Bank’s policy has been “restraining” demand for housing.  He expects demand will grow this year, which will likely bring price increases along with more affordability concerns.

Macklem cautions that rates are unlikely to return to the record low (and nearly zero) levels that have been in place since the global recession from 2009 to 2021 and through the COVID pandemic.  He also warned that, when the Bank does start reducing rates, “it’s likely to be a pretty gradual path.”

“Canadians should not be expecting a rapid decline in interest rates,” he said.

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Canada’s realtors are hinting that home prices may have found their bottom.

The February numbers from the Canadian Real Estate Association show price, as measured by the Aggregate Composite MLS Home Price Index (seasonally adjusted), was flat compared to January.  That ends a five month slide in prices, which dropped 1.3% between December and January.

The national average price of a home in February came in at a little less than $686,000, up 3.5% year-over-year.

Sales were up almost 20% from last February, but it has to be remembered that February 2023 was an unusually slow month.  Compared to January sales dipped 3.1% in February.

CREA is hopeful the stabilization of prices signals an impending reversal in demand.

“The fact that prices were unchanged from January to February was noteworthy given the … drop from December to January.  Shifts this abrupt are exceedingly rare.  There have only been three other times in the last 20 years that have shared a sudden improvement or increase in the month-over-month percentage change … of this size; all at various points in the last four years when demand was coming off the sidelines,” CREA said in its release.

New listings rose 1.6% in February compared to January, bringing the sales-to-new listings ratio to 55.6%. The long-term average is 55%.

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Some good news from Statistics Canada.  Canadian households were wealthier in the 4th quarter of 2023.

The federal number-crunchers say household net worth rose by 1.8%, largely because of stronger financial markets.  Both bonds and stocks rallied from slumps experienced in the third quarter.  Net worth is the value of all household assets, minus all liabilities.

Over the year as a whole, 2023 saw household financial assets increase by 7.0%, with non-financial assets rising 1.8%.  Financial liabilities also increased, climbing 3.4%.  That is the slowest accumulation of household debt in a calendar year since 1990.

The household saving rate was up.  It came in at 6.2% in Q4 of 2023 compared to 5.6% for the same period a year earlier.

Canada’s hefty debt-to-income ratio eased slightly in the 4th quarter, dipping to 178.7% from 179.2% in Q3.  So, Canadian households still owe about $1.79 in debt for every dollar of disposable income.

Residential real estate has been holding its own, although the market has been inconsistent.  The value of residential real estate declined 1.9% in Q4, the second drop in a row.  However, for the entirety of 2023 value increased by 1.8%, due to stronger performance in the first half of the year.

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We are back from a brief holiday hiatus and there are a few things to update.

Home sales and prices both continued downward according to the Canadian Real Estate Association.  Sales dipped 0.9% compared to October and year-over-year figures showed the same decline.  Prices came down 1.6% month-over-month, but the national average price is 2.0% higher than a year earlier, at just under $657,000.  CREA’s preferred measure of pricing, the MLS Home Price Index, showed a 1.1% decline from October, with a 0.6% increase compared to November of ’22.  The sales-to-new listings ratio continued to tighten as well.  The number of newly listed homes fell 1.8% month-over-month in November.  The pace of new housing starts dropped 22% according to Canada Mortgage and Housing Corporation.

The economy as a whole is also sluggish.  Gross Domestic Product numbers for the third quarter showed a 1.1% contraction, year-over-year.  But StatsCan made an upward revision to the Q2 numbers and a technical recession was avoided.  Q2 showed a 1.4% increase.  All in all it was enough to keep the Bank of Canada on the sidelines.  The central bank held its Policy Rate at 5.0% for a third straight setting.  Now market watchers have their sights set on the horizon, looking for signs of interest rate cuts.

Competition in the mortgage market may have diminished.  The federal finance minister Chrystia Freeland has approved RBC’s takeover of HSBC.  The $13.5 billion dollar deal is expected to close sometime in the first quarter of this year.  Well known mortgage commentator Rob McLister calls it a sad day for mortgage customers.  He calls HSBC an “everyday, low-cost lender” that gave borrowers some “leverage” against the big banks.

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