Canadian Housing Market Trends in February 2023

The Canadian housing market has been in the news recently due to a variety of factors, including rising interest rates, the mortgage stress test, and a decline in home prices. In this article, we’ll take a closer look at some of the latest statistics and trends from the Canadian Real Estate Association (CREA) and other sources.

Canadian Housing Market Sales and Prices

Statistics released by the Canadian Real Estate Association (CREA) show that national home sales were down on a month-over-month basis in January 2023. The number of actual monthly transactions came in 37.1% below January 2022, which was the second-best January ever recorded. The actual national average sale price posted an 18.3% decline year-over-year in January. The MLS Home Price Index (HPI) also declined by 1.9% month-over-month and was down 12.6% year-over-year. The national benchmark price for a home declined 1.9% to C$714,700 ($532,060) in January from December, which is down 15% from last year’s peak.

Sales Trends Across Regions

Home sales recorded over Canadian MLS Systems edged back down 3% between December 2022 and January 2023. Gains in Hamilton-Burlington and Quebec City were more than offset by declines in Greater Vancouver, Victoria and elsewhere on Vancouver Island, Calgary, Edmonton, and Montreal. The long-term average for sales-to-new listings is 55.1%, while the January 2023 sales figure was the lowest for that month since 2009. With new listings up and sales down in January, sales-to-new listings eased back to 50.7%, roughly where it had been over the entire second half of 2022.

Canadian Housing Market Inventory and Prices

There were 4.3 months of inventory on a national basis at the end of January 2023, which is close to where this measure was in the months leading up to the initial COVID-19 pandemic lockdowns and still close to a month below its long-term average of about five months. The Aggregate Composite MLS Home Price Index (HPI) was down 1.9% on a month-over-month basis in January 2023, continuing the trend that began last spring. The Aggregate Composite MLS HPI now sits 15% below its peak level, reached in February 2022. While prices have softened almost everywhere, Calgary, Regina, Saskatoon, and St. John’s stand out as markets where home prices are barely off their peaks at all. An interesting development in recent months has been an increasing number of East Coast markets where prices appear to have bottomed out on a month-to-month basis and are now trending back up.

The Impact of Interest Rates

Buyers are likely feeling increasingly confident in taking on variable rate mortgages, and 2023 will probably be a good window of opportunity to engage in a calmer home search and buying experience following the intense market conditions of the last few years. The number of newly listed homes picked up by 3.3% on a month-over-month basis in January, led by increases across British Columbia. That said, despite the small increase, nationally, new listings remain historically low. New supply in January 2023 hit the lowest level for that month since 2000.

Affordability and Vulnerability

The affordability issue in Canada is not limited to homeownership, but also rental housing. According to Canada Mortgage and Housing Corporation (CMHC), affordable shelter should equal 30% of pre-tax income. However, this is not the case in many Canadian cities, particularly in major urban centers such as Toronto and Vancouver. In Toronto, for example, people who have lived there for more than 30 years say that affordable housing is a myth, with rent taking up more than 50% of their income. This highlights the severity of the affordability crisis in Canada and the need for urgent measures to address it.

In recent years, there has been a growing trend of buyers taking on variable rate mortgages, indicating their willingness to take on more risk to afford homeownership. However, this approach may not be sustainable in the long run, as rising interest rates can lead to increased financial stress for homeowners. As such, policymakers need to implement measures to address affordability issues and protect the housing market from future crises.

Sales Down, Listings Up

Statistics released by the CREA show that national home sales were down 3% month-over-month in January 2023. Actual monthly activity was 37.1% below January 2022. However, the number of newly listed properties rose by 3.3% on a month-over-month basis in January, led by increases across British Columbia. Despite the small increase, new listings remain historically low. New supply in January 2023 hit the lowest level for that month since 2000.

Sales-to-new listings eased back to 50.7% in January, roughly where it had been over the entire second half of 2022. There were 4.3 months of inventory on a national basis at the end of January 2023, which is close to where this measure was in the months leading up to the initial COVID-19 pandemic lockdowns.

Mortgage Stress Test

In December 2022, Canada’s banking regulator pushed back against calls to weaken or eliminate the country’s mortgage stress test. The test requires borrowers to prove they could afford higher interest rates, which helps prevent homebuyers from taking on too much debt. The five-year conventional mortgage rate posted by the Bank of Canada is a benchmark used in the stress test. The current posted rate is 4.89%, up from 4.79% at the end of 2021.

Home Price Index

The MLS® Home Price Index (HPI) declined by 1.9% month-over-month in January and was down 12.6% year-over-year. The Aggregate Composite MLS® HPI now sits 15% below its peak level, reached in February 2022. Prices are down from peak levels by more than they are nationally in many parts of Ontario and some parts of B.C., and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina, Saskatoon, and St. John’s stand out as markets where home prices are barely off their peaks at all.

History and Evolution of the Canadian Housing Market

The Canadian housing market has a long history dating back to the 19th century. During this period, the housing market was relatively small, and most Canadians lived in rental properties. The first wave of Canadian homeownership began in the early 20th century when the Canadian government introduced various programs to encourage people to buy homes.

The Canadian housing market experienced significant growth in the 1950s, fueled by a post-World War II economic boom. During this period, the government introduced a range of policies that made it easier for people to buy homes, such as the creation of the Canadian Mortgage and Housing Corporation (CMHC) in 1946. This organization provided mortgage insurance, which helped people obtain loans from banks to purchase homes.

In the 1970s, the Canadian housing market saw further growth, driven by increased immigration and low-interest rates. During this period, the government introduced several measures to promote homeownership, including the Homeowner Protection Act, which ensured that new homes were built to a high standard, and the creation of the Canada Housing Trust, which provided affordable housing to low-income families.

In the 1980s, the Canadian housing market experienced a downturn due to high-interest rates, which made it difficult for people to obtain mortgages. However, the market recovered in the 1990s, and by the end of the decade, home prices had risen significantly.

Factors Contributing to the Growth of the Canadian Housing Market

In recent years, the Canadian housing market has seen significant growth, driven by several factors. One of the primary drivers of this growth has been low-interest rates, which have made it easier for people to obtain mortgages. Additionally, the Canadian government has introduced several policies that have made it easier for first-time homebuyers to purchase homes, such as the First-Time Home Buyer Incentive.

Another factor contributing to the growth of the Canadian housing market has been increased immigration. Over the past few decades, Canada has become a popular destination for immigrants, many of whom are looking to purchase homes. This has led to increased demand for housing, particularly in urban areas.

Rental prices: A closer look at the numbers

The average cost of a 1-bedroom apartment in Mississauga is $2145, while in Toronto, it’s $2457. Despite the higher cost, Toronto’s amenities make it a more attractive option for some renters. However, the price points make no sense, with Burlington charging $2135, and Guelph costing $2049, which is more expensive than Vaughan at $2006. Even so, many people prefer the suburbs for their space, nature, quiet streets, and other community benefits.