Canada’s real estate correction may already be over, as prices return to sharp growth. BMO Capital Markets wrote to investors this week to explain they see higher home prices in the near-term. The bank observed that shortly after the Bank of Canada (BoC) warned of no further rate hikes, buyers returned with bigger budgets and new inventory suddenly dried up. Now the most powerful price indicator is pointing to a sharp increase for home prices in the next few months.
Bank of Canada Signaled The Era of Contracting Credit Is Over
Canada’s real estate price correction might have been more brief than many had hoped for. Last month marked the third consecutive month Toronto and Vancouver home prices climbed. Not a slight increase either, but prices climbed over $20,000 just last month. After the sharpest increase in history, home prices corrected for less than a year, leaving them significantly inflated.
“Home prices in Toronto (and various other parts of the country) are finding a floor, not coincidentally a process that started almost the moment the BoC told Canadians it is done raising rates,” wrote Robert Kavcic, a senior economist at BMO.
He notes that after the signal given by the BoC, sales volume and prices have begun to firm. It’s only been a brief pause for the correction, but inventory is drying up quickly. That slants the risk (reward?) towards higher home prices.
Canadian Real Estate Indicator Points To Higher Home Prices
One of the best indicators of home prices has been the sales to new listings ratio (SNLR). The SNLR is exactly what it sounds like—the share of home sales compared to the number of new listings. It’s a simple but powerful indicator, more commonly used by the industry to determine a buyer’s or seller’s market.
Kavcic used the SNLR to predict when home prices would hit 0% growth last year, nailing it with remarkable precision. It’s now pointing in the opposite direction, indicating home prices are set to climb fairly rapidly this year.
Source: BMO.
“The biggest factor of all [driving home price growth], however, might be the complete lack of new listings. While sales were down a modest 5.2% y/y in Toronto in April, new listings were down 38% y/y. That has tightened the market balance in a hurry, to what now again looks like sellers’ territory,” he said.
That Was It? Is Canada’s Real Estate Correction Over?
Canada’s real estate correction might not be over, as every significant correction has a pause. A period known as the “return to normal,” when the market is in disbelief that prices can fall further.
“Peak-to-trough (if we have in fact seen the trough), Toronto prices fell 18%, which still marks a steep and sudden correction from a historical perspective (of course, that was from a highly inflated level),” says Kavcic.
Forced selling, rising unemployment, and a recession are typical of home price corrections. None of those factors have materialized in any significant way, leading many to see the correction as a temporary issue. This was reinforced by the BoC’s messaging, indicating the economy isn’t strong enough to take higher interest rates.
“The nature of our mortgage market has limited any forced selling (i.e., even for those with variable-rate mortgages); the job market is still rock solid; and some would-be sellers could simply be holding out for better market conditions,” he said.
However, it’s worth noting that Canada’s economy is slowing down and things can change quickly. Earlier this week, RBC warned they’re seeing Canadian households fall behind on credit payments. They’re currently forecasting lower economic growth, higher unemployment, and rising delinquencies over the next year. Canada’s largest bank also doesn’t see it as a quick band-aid like event either, but occurring over several years.
Wow! I love how many articles contradict one another on this site. One day licking your chops at the thought of a real estate correction only to realize the correction is over and you’ll be forever in your 300 sqft one bedroom paying $3000 per month.
We’re in a market that hasn’t been rational in a decade. It makes sense that there’s no coherent picture.
Yes, real estate investment should be regarded as a long term project- the question SHOULD always be, can I hold on for the long term ?I find these reports to be alarming since they report such a small snapshot of the rise and fall of the real estate market, inciting fear and despair in those wishing to own their own home, the great Canadian dream. Moving forward, may there will be effective incentives to allow home ownership.
Here’s to a hopeful, encouraging future in this country.
Real estate agents and their media pals are the ones screwing this country over.
They all want their commissions, they want you to think the market is on fire so that they still get paid. Every article and every comment about the housing market is a bunch of crap, just so they can fear you into buying NOW so they get their commissions. You want to see home prices become affordable? GET RID OF REALTORS
Agreed.
Realtors are the problem. All they want is their commissions. Keep paying for news saying how hot the market is so they can fear you into buying now..So they ensure their commissions don’t decline. If Canada wants home prices to become affordable, Realtors need to go bye-bye.
Anyone see the lineup at the food banks.
All the sudden people can afford the higher interest rates and buying again. Comedy at its best.
😆 🤣 😂 😹 😆 🤣 😂
Another way to look at the issue is that this high inflation rate is caused by long periods of time low-interest rates, and government money printing for stimulus programs that expanded credit and demand. Higher interest rates could dry up these high credit issues!
Freedom 85!
Time to unfollow better deelling! This is Laughable! Is this satire or am i expected to be taking this seriously? Do you have any roots in the real world? Because we’re headed full speed no brakes towards catastrophe!
You real estate bears are hilarious. Talk about not shooting the messenger—they tell you that a bank said prices are going to rise (Kavcic being the one that rightfully called the decline), and you’re mad that they aren’t coddling your opinion.
I hear if you unfollow everyone you’ll always be right too.
Lol the housing market is the biggest sham going, and the ppl falling for it are foolish wanna get prices back to normal within reach for everyone stop buying houses period. The banksters are luring the sheep in cause when they collapse it all and make no mistake they will, ppl will be done its the plan read the plan in the US Bankers association Magazine 1924 actually it’s so easy google it!
“Capital must protect itself in every possible manner by combination and legislation. Debts must be collected, bonds and mortgages must be foreclosed as rapidly as possible.
When, through a process of law, the common people lose their homes they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers.
This truth is well known among our principal men now engaged in forming an imperialism of Capital to govern the world. By dividing the voters through the political party system, we can get them to expend their energies in fighting over questions of no importance.
Thus by discreet action we can secure for ourselves what has been so well planned and so successfully accomplished.”
“Capital must protect itself in every possible manner by combination and legislation. Debts must be collected, bonds and mortgages must be foreclosed as rapidly as possible.
When, through a process of law, the common people lose their homes they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers.
This truth is well known among our principal men now engaged in forming an imperialism of Capital to govern the world. By dividing the voters through the political party system, we can get them to expend their energies in fighting over questions of no importance.
Thus by discreet action we can secure for ourselves what has been so well planned and so successfully accomplished.”
US Bankers Association Magazine
1924
Higher house prices will only have one result. The Bank of Canada will raise interest rates more. Regardless of house prices they might have to anyway so this minor bump will not last very long,
I’m on the fence about whether sustaining these higher interest rates for even a few more months will damage the market psychology in Canada enough to force the market into a downward/self-reinforcing spiral to something realistic, like 50% from peak, but rising, “can’t lose” real estate is so deeply ingrained and part of the social contract here now that I could certainly believe it’s turning around and will go to the moon. Time will tell.
Buy low
Sell high
Big bank take lil bank
We have homeless starving on the street and a housing affordability problem/crisis. Is that good then?
Who cares?
As long as the majority of voters are spared.
The high rates would help turn it around and deflate things if they were allowed to. But no government – left, center or right, provincial or federal – is going to destroy people’s wealth, so suck AND blow. You’re 100% right in that it’s so deeply ingrained in Canadian society. It’s actually a pathology. The only things that could break it are a slow realization, like high interest rates, allowed to do their thing for long enough, or something catastrophic. Global pandemic (pretty catastrophic) didn’t do it, we trippled down instead. So, yeah, we’re probably headed to the moon with our collective pathological house lust.
So inflation has disappeared?
Wow time to buy another 50 per cent rise to the moon coming. Hurrah to justin and the banks
I’m appreciate this work
Everyone knows the “return to normal” bump on the bubble graph. Hopefully it’s the case.
Writing from Montreal, hopefully there are good deals to be made early next year.
Fewer families (hardly possible, I know) & more homeless on Canadian streets. Must be the plan, as this level of abject ignorance is inconceivable.
Does the author know that there are other cities in Canada besides Toronto and Vancouver?
I’m sure if you give a Vancouver news outlet $100k/year, they can hire an analyst to cover your small town. Otherwise those two cities are 40% of home sales and 60% of dollar volume across Canada, and their coverage reflects that.
As long as the tax payers are footing the CMHC bill after the collapse, there’s nothing to fear for these investors/money professionals. Too big to fail = government bailout. IIWII, get out while you can.
We’ve surpassed Japan’s HB and their economy is way larger than ours. Recovery will be a long process unless oil prices shoot to $150 a barrel again.
What’s going on now is just craziness. Thirteen years ago I purchased my house for 60 thousand banks were giving houses a way in Windsor now there out of reach I will never leave not with this uncertainty good luck every body this is nuts
This report is not true. Look at Chatham Ontario. No homes sold since August 2022. Stop posting lies.
not sure why you would tell such a blatant lie that can be easily disproven. Literally thousands of homes sold since then. This is just last month.
https://realestatechathamkent.com/chatham-kent-association-of-realtors-mls-home-sales-continue-to-riseeven-as-new-listings-continue-to-decline/
Err, Tiff said he’s likely hold or even raise rates again, in fact they debating raising rates last meeting. He mentioned the only way they’d start reducing rates is if massive bank failures turned contagious. That’s not that likely, so the safest best would be a hold or raise.
You can watch the Canada 10Y bond yield as a forward indication of what BoC will do, and it’s been pumpin’ +7% Friday May 5th, +3% Monday May 8th. Technically the 10Y yield looks to be breaking out again, heading back up towards the 5% range. That means banks will increase their rates to match bond yields.
The authors of this site /majority of readers are basically stupid, so they’ probably have no idea what I’m talking about.
Haha. You know the founder of the site is the person that killed Tiff’s use of Transitory in Parliament, right?
Although I’m guessing since you read the opinion of one of the most accurate Big Six bank economists and attributed it to the website, you have yet to grasp English.
But sure, you totally get central banking. After all, Tiff, an incompetent and persistent liar, said he might raises rates while actively preventing yields from rising.