Canada: The Housing Market Takes a Spring Break

Home sales took a step back in February. The drop likely reflected the pickup in Canadian mortgage rates seen early in late January and early February, which followed stronger-than-anticipated economic data. Still, tighter local markets like Calgary and Edmonton sustained sales price gains, in line with the rising sales-to-listings ratios observed last month (graph 1).

Regional differences persisted. While sales increases in Calgary and Edmonton weren’t as strong as those experienced by Toronto and Vancouver in late 2023 and January 2024, the first two cities’ momentum continues to be more consistent. In fact, their home sales are still well above pre-pandemic levels (graph 2). By contrast, higher levels of investor activity in Toronto and Vancouver likely contributed to stronger responses from more optimistic market expectations of rate cuts in early 2024. We’ve seen those cities respond more strongly to changes in borrowing costs over the past year-plus.

New listings remain an indicator to watch. February’s second consecutive increase could mean improving market sentiment if prospective sellers are responding to recent strength in buying activity. But rising listings could also reflect homeowners forced to sell under pressure from higher mortgage rates at renewal. Moreover, in an environment of apparent pent-up homebuying demand External link. and a significant long-run housing supply shortfall External link., higher listings can enable higher sales. Which of these forces dominates will likely only become clearer in the months ahead.

While bond markets should continue to respond to incoming economic data, we still don’t think a full-fledged housing market rebound can happen until rate cuts begin. February results also don’t change our view that the first Bank of Canada rate cut will occur in the second quarter of 2024. But following the pickup that came after its early 2023 pause, the BoC will be careful not to reinflame the market once again. And as we’ve highlighted before, we expect shelter price inflation External link. to have an outsized impact the rate of annual consumer price growth in the quarters ahead.