National real estate market stagnates in May ahead of rate cut effect

Would-be home buyers continued to bide their time in May in anticipation of lower mortgage rates – though markets should pick up in the coming weeks now that cuts are officially in place, says the Canadian Real Estate Association (CREA).

The latest housing market numbers show sales are stagnating over the short term, dipping -0.6% between April and May. Compared to the same time period last year, activity is down -5.9%, with a total of 51,219 transactions.

“The spring housing market usually starts before all the snow has melted, somewhere around the beginning of April, but this year I believe a lot of people were waiting for the Bank of Canada to wave the green flag,” said James Mabey, Chair of CREA. “That first rate cut is expected to bring some pent-up demand back into the market, and those buyers will find there are more homes to choose from right now than at any other point in almost five years.”   

Also read: Bank of Canada cuts target interest rate by 0.25% in June 2024 announcement

New supply continues to build across Canada

Despite scant interest from buyers, sellers appear optimistic that demand will pick up soon, as 99,614 homes were added to the market across the nation, up 13.5% annually. On a monthly basis, new listings rose 0.5%.

The combination of dwindling sales and surging supply in turn pulled the average home price down by -4% year over year, to $699,117. The MLS Home Price Index – which is an indicator of the most typical home type sold with the upper and lower extremes stripped out – fell -2.4% from May 2023. According to CREA, this “mostly reflects how prices took off starting last April, something that hasn’t yet been repeated in 2024.”

Home prices “sliding sideways” across most Canadian markets

The board adds that from a regional perspective, prices are “sliding sideways” in most markets, with the exception of the Prairies – price growth continues to be robust in Calgary, Edmonton, and Saskatoon.

Overall market balance also improved in May, given softer sales and rising listings; the national sales-to-new-listings ratio (SNLR) ticked down to 52.8% in May, from 53.3% in April. This reflects a balanced market (based on CREA’s range of 45 - 65%), and sits just below the long-term average of 55%. By the end of May, a total of 175,000 properties were available for sale, up 28.4% from last year, and marking an overall 4.4 months of inventory, up from 4.2 in April.

“[Looking] past the volatility at the onset of the COVID-19 pandemic, the highest level for this measure since the fall of 2019. The long-term average is about five months of inventory,” reads CREA’s release.

Summer bounce back expected following rate cuts

However, home buyers shouldn’t count on a relaxed market experience for long now that Canada’s central bank has officially entered rate cutting mode, says the board’s Senior Economist Shaun Cathcart; Canada’s central bank decreased its benchmark Overnight Lending Rate earlier in June by a quarter of a percentage point, in turn lowering Canada’s Prime Rate as well as variable mortgage rates.

“May was another sleepy month for housing activity in Canada, although it may prove to be the last of those now that interest rates have moved lower,” he stated. “The Bank of Canada’s June 5 rate cut may have only been 25 basis points, but the psychological effect for many who have been sitting on the sidelines was no doubt huge. The question now turns to further rate cuts – specifically, how fast, and how far?”

The next Bank of Canada rate announcement will be July 24, 2024.

Also read:

• Toronto home sales fall 22% in May as buyers await rate cuts
• What does another US Federal Reserve rate hold mean for Canadians?
• How much will 30-year amortizations cost for insured borrowers?
• Bank of Canada cuts target interest rate by 0.25% in June 2024 announcement