Canadian real estate conditions drop to 10-year low in October

The Canadian real estate market continued to chill throughout October, with slowing sales and price growth that more resembled winter-month activity, rather than the typically robust fall season.

According to the Canadian Real Estate Association, a total of 33,921 homes traded hands over the course of the month, a -5.6% decline from the previous month. This indicates activity is cooling sharply over the short term, following the -1.9% decrease recorded between August and September. According to the national association, the majority of Canadian markets saw sales dip.

“We’re only in November, but it appears many would-be home buyers have already gone into hibernation,” said Larry Cerqua, Chair of CREA. “The October numbers also revealed some sellers may be shelving their plans until next spring."

The year-over-year gap in activity has also effectively closed, with transactions up just 0.9% compared to the same time period in 2022.

Home prices flatten out as demand drops

Home prices are also flattening out, posting a 1.8% year-over-year increase at $656,625 – also relatively unchanged from September’s average of $655,207. The MLS Home Price Index was down on a monthly basis for the second time in a row, at  -0.8%, but was still up 1.1% year over year.

“While price declines are still mainly an Ontario phenomenon, home prices are also now starting to soften in parts of British Columbia,” reads CREA’s report.

Sellers also seemed less inclined to participate in the October market; the number of newly-listed homes declined by -2.3% month over month at 70,020 properties – the first drop in volume since March. That’s a turnaround from the brief recovery in supply earlier this fall, given 78,202 came to market in September; on an annual basis, however, new listings rose by 16%.

Buyer competition hits a 10-year low

Despite fewer homes listed for sale, market conditions still softened, with competition at a 10-year low; as the decline in sales outpaced that of new listings, the national sales-to-new-listings ratio dropped to 49.5%, firmly positioning Canadian real estate as being in a balanced market. In contrast, the highest level for this measure was 67.9%, recorded this past April. The long-term average for this measure is 55.1%. CREA defines a ratio between 40 - 60% to be a balanced housing market, with below and above that threshold indicating buyers’ and sellers’ conditions, respectively.

The number of months of inventory – the amount of time it would take to fully sell off all available homes for sale amid current market conditions – now sits at 4.1. That’s a whole month above the low of 3.1 months seen in May. However, states CREA, that “remains below its long-term average of near five months of inventory.”

Given autumn's slower-than-usual activity, it’s unlikely the housing market won’t perk back up again until the spring, says CREA Senior Economist Shaun Cathcart, noting that housing demand is still “extremely high all across the country.”

All eyes on the Bank of Canada’s next rate move

However, demand will hinge heavily on interest rates, and whether or not the Bank of Canada lowers its overnight lending rate – the benchmark used by lenders to set their variable cost of borrowing – or keep it unchanged.

The central bank implemented a historic series of 10 rate hikes between March 2022 and July 2023, which dramatically increased the benchmark rate from 0.25% to 5% today. Combined with still-elevated home prices, the resulting higher mortgage rates effectively pushed many would-be buyers out of the market; it’s expected that the market will see a resurgence should affordability conditions improve in the future. 

“The rebound in activity this past spring was an example of what we might see next year. It will really come down to whether the Bank of Canada has to increase interest rates again, or whether by next March it’s simply a matter of how soon we’ll see the Bank make its first cut,” says Cathcart.

Also read:

• Think mortgage rates will drop? The argument for getting a variable rate now
• High mortgage rates spooked GTA home buyers in October
• Bank of Canada Council split on latest rate hold
• Home affordability declined in September as stress test hit new high
• Bank of Canada holds target interest rate at 5% in October