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Economic News

Canada: Would-Be Homebuyers Continued to Sit on the Sidelines in May

June 17, 2024
Kari Norman
Economist

Highlights

  • The pace of housing starts in Canada rose in May to 264.5k (saar), on the back of stronger-than-expected multi-unit housing projects while single family housing held steady. Table 1 below summarizes key data points.
  • Home sales in Canada fell by 0.6% in May while prices were little changed. Table 2 below summarizes key data points.
  • Our tracking suggests real annualized GDP growth of about 1.75% in Q2 2024 based on the indicators released so far in Q2. This is slightly above the Bank of Canada’s (BoC’s) estimate published in April.

Implications

As we detailed in our recent report External link., high interest rates have weighed on economic growth, job creation and affordability across the country, limiting homebuying activity in both preconstruction and resale residential homes. However, many of the projects breaking ground last month were financed prior to the recent monetary tightening cycles.

Multi-unit construction picked up steam in May, while the single-unit residential construction market continued to hold steady (graph 1). Regionally, there were more shovels breaking ground in Quebec and the Maritime provinces, partially offset by weakening in BC, Manitoba and Saskatchewan. While construction picked up in Ontario in May, it’s still down almost 9% so far this year as compared to the same period a year ago.

Existing home sales declined by 0.6% but remained within the range of seasonal norms in May (graph 2). The increase in new listings shows that sellers may be anticipating an uptick in demand. On the other hand, would-be homebuyers remained solidly on the sidelines in May, likely anticipating the start of interest rate cuts.

Despite this decline in sales, average prices remained relatively stable, recording a slight increase of 1.0% from the prior month. Benchmark prices went the other way, slipping just marginally from April. Regional differences remain significant, with both sales and prices up in Calgary last month, and both falling in Montreal after strength earlier this year. Toronto had fewer sales than the month prior, while prices held steady.

The gradual unwinding of interest rate hikes, which began recently, may bring some buyers back to the market this summer, hoping to find the sweet spot between lower mortgage rates and the possibility of rising home prices as demand picks up. Still, we expect that it will take more meaningful rate relief before we see any significant rebound. The Bank of Canada will undoubtedly be watching this carefully, since shelter is now the largest component driving inflation.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.