The Canadian economy may be struggling, but the real estate market is showing signs of stabilization thanks to cheaper credit. Data from the Canadian Real Estate Association (CREA) reveals that the price of a typical home remained unchanged in November, halting months of decline. This pause, driven by improved buyer sentiment and favorable policy changes, marks a turning point—at least for now. Rate cuts and state-backed buyer incentives are giving the market a temporary boost, though history suggests such rallies may lack longevity.
Have Canadian Real Estate Prices Found a Bottom?
In November, the price of a composite benchmark home in Canada remained relatively steady, slipping just 0.1% (-$600) to $707,100. Compared to the same time last year, this represents a modest 1.2% decrease (-$8,400). While these numbers indicate relative stability, they remain a far cry from the record highs of March 2022, when the benchmark hit $852,000. Prices are still down 17% (-$144,900) from that peak.
While these declines might not fully reflect affordability challenges, the recent plateau suggests that the market could be finding its footing. Over the past four months, the annual price change has been improving, signaling a gradual recovery in sentiment, though not yet in actual growth.
Winter Market Dynamics: Buyers Resilient Amid Slower Listings
Heading into winter, a season known for slower real estate activity, buyers appear undeterred. The sales-to-new-listings ratio (SNLR) reached 59% in November, teetering on the edge of an overheated market. This demand uptick is attributed to several factors:
- Pent-Up Demand: Buyers sidelined by higher rates earlier in the year are re-entering the market.
- Rate Cuts: Recent aggressive reductions in borrowing costs have lowered barriers to entry.
- Buyer Incentives: State-backed programs designed to assist first-time buyers launched this month, further motivating activity.
However, this surge in demand has yet to overcome the significant challenges facing the broader economy.
Cheap Credit Outpaces Eroding Fundamentals
The enthusiasm in the real estate market may not reflect the reality of Canada’s economic fundamentals. Rising unemployment and a controlled population decline—two key indicators that typically temper home price growth—are being overshadowed by the lure of cheap credit.
Historically, sentiment-driven rallies have proven to be short-lived. Buyers, driven by fear of missing out (FOMO) or temporary financial advantages, often retreat when market conditions shift. Similar surges in activity have occurred multiple times in recent years, often in anticipation of rate cuts, only to dissipate shortly afterward.
What’s Next for Canadian Real Estate?
While the market may have found temporary support, questions remain about its sustainability. Can demand persist if unemployment continues to rise? Will policymakers intervene further to stabilize the economy?
For now, cheaper credit has stopped the bleeding in Canadian real estate prices. Whether this is the start of a lasting recovery or another fleeting moment of optimism remains to be seen. Buyers and sellers alike should keep a close eye on economic fundamentals as 2024 comes to a close.
*Source CREA - https://www.crea.ca/media-hub/news/*