National home sales rise 26% in November due to rate cuts

The buyers are officially back. Home sales rose across Canada for the third month in a row, as lower interest rates drove renewed demand after a largely stagnant year.

The Canadian Real Estate Association (CREA) reports a total of 37,855 homes traded hands in November, marking a 26% increase from the same time period last year and up 2.8% from October. This follows the 30% surge in sales recorded in October, and 6.9% increase in September.

The Bank of Canada started cutting its benchmark interest rate in June, lowering the pricing for variable mortgage rates. According to CREA, sales now stand a cumulative 18.4% above May levels, just before the central bank embarked on its cutting cycle. Canada’s largest markets saw the biggest gains in activity, says the association, including the Greater Vancouver and Toronto Areas, as well as Calgary and Montreal. Other smaller cities in Alberta and Ontario also experienced double-digit sales increases. 

“October and November marked the start of the long-awaited rebound in resale housing activity, with the combination of lower borrowing costs and more properties to choose from coaxing buyers off the sidelines,” said James Mabey, CREA Chair.

Home prices rise nearly 8% from last year

That increase in sales is starting to eat into the built-up inventory that has accumulated over the year, while the pace at which new listings are coming to market is starting to decline. A total of 56,242 homes were listed over the course of the month, up 2.4% year over year and down 0.5% on a monthly basis, compounding on the 3% decline in October.

That’s put upward pressure on prices, with the national average increasing 7.4% on an annual basis, to $649,411, and up 0.9% month over month. The National Composite MLS Home Price Index (HPI) – which measures the most typical type of home sold with the high and low extremes stripped out – rose 0.6% from October to November. That’s the largest month-over-month increase since last July, says CREA.

“Not only were sales up again, but with market conditions now starting to tighten up,  November also saw prices move materially higher at the national level for the first time in almost a year and a half,” said Shaun Cathcart, CREA’s Senior Economist. “Normally we might expect this market rebound to take a pause before resuming in the spring; however, the Bank’s latest 50-basis point cut together with a loosening of mortgage rules could mean a more active winter market than normal.”

Canadian real estate is still balanced – for now

With new listings on the decline and sales on the rise, market conditions are starting to heat up, with buyers facing more competition in the marketplace. CREA reports that the sales-to-new-listings (SNLR) ratio, which measures how competitive market conditions are, increased to 59.2% in November from 57.3% in October. While still considered largely balanced, that’s creeping back towards sellers’ market territory; CREA considers a ratio between 45 - 65% to indicate a balanced market, with below and above that threshold reflecting buyers’ and sellers’ markets, respectively. For perspective, the SNLR has hovered in the 52 - 53% range between April and September, with the long term average at 55%.

Overall, there was just over 160,000 homes available for sale in Canada by the end of November, up 8.9% annually, but below the long term average of 178,000 listings. From a months-of-inventory perspective (the amount of time it would take to fully sell off all available homes for sale), there were 3.7 months, down from 3.8 in October; the lowest level in 14 months, says CREA. The long- term average is 5.1 months of inventory, with a seller’s market being below about 3.6 months and a buyer’s market being above 6.5 months. 

Will the housing market continue to heat up?

There are a number of factors that point to a brisk January real estate market, and a particularly hot spring selling season. The largest contributor is that interest rates are expected to lower further. The Bank of Canada most recently cut its benchmark rate – which lenders use to set their prime rates and, by extension, variable borrowing rates – by 0.5% on December 11, lowering it to 3.25%. That now sits a total of 175 basis points below where the rate started in June. As a result, the best five-year variable mortgage rate in Canada has lowered from around 5.7% to 4.35%.

Fixed mortgage rates have also fallen, as bond yields – which lenders use as a pricing floor for fixed rates – have dropped over the course of the year as investors respond to the BoC’s rate cuts.

The BoC stated in its last announcement that it will now slow the pace and size of upcoming cuts, due to inflation stabilizing around its target 2% range. However, economists' consensus still call for the BoC to cut until its rate is around 2.5%, some time in the later half of 2025. That will continue to drive demand, as borrowing costs become even more attractive.

New mortgage rules, which ease conditions for first-time and insured mortgage borrowers, also went into effect on December 15th, and will also further incentivize buyers. The new rules have expanded the minimum amortization period to 30 years for all first-time home buyers and buyers of new construction, regardless of their insured mortgage status. They have also increased the maximum purchase price for insured mortgage borrowers (those who put less than 20% down) to $1.5 million, from the previous $1 million. This will improve affordability for a group of buyers looking to purchase in this price range, particularly in some of Canada’s priciest markets, such as Vancouver and Toronto.

Also read:

• Bank of Canada cuts target interest rate by 0.5% in December 2024 announcement
• First-time home buyer guide: Programs and incentives
• Insured vs. uninsured mortgages: What’s the difference?
• Bank of Canada rate cut leads to improved affordability in October