Have Home Prices Bottomed Out in Canada?

Canadian home prices that have fallen nearly 19% in the past year appeared to be flattening in February as home sales surged, leading analysts to express cautious optimism that the market has reached a turning point.

According to the Canadian Real Estate Association’s (CREA) latest report, there was a 2.3% rise in home sales in Canada from January to February 2023, the largest monthly surge since March 2022, with the greatest gains recorded in the markets with the strongest demand, Greater Toronto (GTA) and Greater Vancouver.

Home prices ticked down 1.1% nationally in Canada in February, the smallest monthly drop since March of 2022, when a series of eight consecutive rate increases by the Bank of Canada began pulling housing prices down from their peak in February 2022.

Economists are hoping that the bottom has been reached, despite a sales level that remains 40% lower than it was a year ago.

“I think one of the mistakes that people might make this year is to focus on some big year-over-year declines,” Shaun Cathcart, senior economist for CREA, told the Toronto Star. “That’s really the story about last year.”

Prices may be stabilizing because buyers are pursuing a limited pool of listings: newly listed properties dropped 7.9% from last month. Low supply and rising demand have put pressure on house prices, contributing to the levelling out of prices.

There’s still a lot of uncertainty in the Ontario market. In the GTA, home values droppe a record 17.9% YOY in February, according to a recent report from the Toronto Regional Real Estate Board (TRREB).

Jason Mercer, chief market analyst for the board, said CREA’s report points to an upward trend.

“We had similar results on a year-over-year basis with sales in the GTA down by about 47 per cent,” Mercer told the Star. “But what’s interesting is when you look on a seasonally adjusted month-over-month basis, we actually saw a pretty marked improvement (in home sales) between February and January.”

Mercer is expecting a housing crunch in the near future due to the limited supply of homes. In addition to new buyers entering the market in the summer as demand starts to increase, he said the GTA region is expecting a record level of population growth due to the government’s policy encouraging immigration.

“All these people are going to require a place to live, and so, looking through to 2023, and even more so to 2024, we’re going to start to see issues with tighter market conditions,” Mercer told the newspaper. “There just won’t be the inventory required to account for increasing demand.”