In December, Canada home sales saw a welcome uptick, marking the first increase in six months. This surge in activity was driven by the anticipation of lower borrowing costs in the coming year. Buyers, responding to this expectation, actively entered the market during this period.
In the positive shift, the number of homes changing hands increased by 8.7 percent compared to the previous month. This rise, reported by the Canadian Real Estate Association on Monday (Jan 15), marks the first gain since June.
The national benchmark home price, adjusted for the season, stood at C$730,400 (S$724,897.60) in December. This reflects a slight decrease of 0.8 percent from November and a modest increase of less than 1 percent compared to the same period the previous year.
Canada Home Sales Rebound as Traders Anticipate Lower Rates
Last month’s increase in activity signals a shift as some financial pressures hindering home buyers begin to ease. Anticipating a slowdown in Canada’s economy, traders project a reduction in the central bank’s overnight rate.
This expectation led to a significant decline in bond yields during November and December, subsequently lowering the cost of fixed-rate mortgages linked to them.
Decreased home prices, coupled with increasing wages, are enhancing the appeal of home purchases for certain households. The national benchmark price currently sits approximately 13 percent below its peak in early 2022. This affordability shift is contributing to a more enticing market for potential buyers.
Board Expects 10.4% Sales Growth
In 2023, Canada home sales witnessed an 11.1 percent decline, totaling 443,511 units for the year – marking the slowest performance since 2008, according to the real estate group.
However, the board’s forecast for this year anticipates a positive shift, with an expected 10.4 percent increase in sales compared to the previous year. This optimistic outlook is attributed to the potential impact of lower interest rates, stimulating more activity in the housing market.
Home affordability in Canada has hit long-time lows, primarily influenced by elevated policy rates. Stuart Paul from Bloomberg Economics warns of an increased risk of a policy misstep as mortgage rates are expected to reset in the coming years. This situation raises concerns about the potential impact on the housing market.
The BoC Faces Dilemma
The Bank of Canada (BoC) faces a dilemma – cutting interest rates to avert a consumption slowdown may fuel home price hikes and shelter-driven inflation. On the other hand, maintaining a higher-for-longer stance to counter a housing bubble poses potential downsides for economic growth.
The expectation is that the BoC will opt for a rate cut of 100 basis points in 2024 as activity slows, aiming to reignite home price growth in the future.
CREA Forecasts Sales Rebound Amidst Price Dynamics
Larry Cerqua, chair of CREA, expressed that while December brought a somewhat surprising uptick in sales numbers to conclude the year, the true measure of the market’s resilience will unfold during the spring.
The upcoming season will serve as a critical test for assessing the durability and stability of the real estate markets.
CREA predicts a notable rebound in sales, forecasting a 10.4% increase in 2024 followed by a further climb of 7.3% in 2025.
Meanwhile, the Home Price Index recorded a 0.8% decrease on a monthly basis but saw a 0.7% annual increase. The national average selling price showed a solid 5.1% year-over-year growth.
