By Canadian existing-home sales and prices experienced a decline in November, signaling a return to prepandemic levels. The drop in sales volume comes after a period of booming residential real estate driven by near-zero interest rates.
The Canadian Real Estate Association (CREA) reported that existing-home sales decreased by 0.9% on a seasonally adjusted basis in November. Similarly, on an unadjusted basis, transactions were 0.9% lower compared to the same period last year.
CREA’s benchmark house prices, which are calculated similarly to the S&P CoreLogic Case-Shiller National Home Price Index, decreased by 1.1% in November compared to the previous month. However, they saw a 0.7% increase when compared to the previous year. Over a three-year and five-year period, prices rose by 22.8% and 36.7%, respectively.
In November, the number of newly listed homes also saw a decline, falling by 1.8% month-over-month following a 2.2% drop in October.
Anemic Growth and Rising Debt in Canada
Canada is currently experiencing a period of anemic growth, according to economists. This economic slowdown can be attributed to the impact of significantly higher interest rates that are now affecting various sectors of the economy.
One noticeable shift in consumer behavior is that households are cutting back on their spending in order to manage the burden of higher debt payments. Recent data shows that the national household debt-service ratio has reached a record-high of 15.2%. This alarming figure serves as a reminder that Canadians are facing challenges when it comes to servicing their debts.
Despite the current economic climate, there are still some positive signs. Robert Kavcic, an economist at BMO Capital Markets, notes that the sales volume as of November remains consistent with the lower end of the range observed before the pandemic. He suggests that while demand has indeed dropped from the frenzy brought on by low interest rates in 2021 and early 2022, demographic factors are preventing activity from declining further.
One driving force behind Canada’s economic resilience is its growing population. Over a one-year period ending on June 30, the country’s population expanded by 1.15 million people, representing an increase of nearly 3%. The majority of this growth can be attributed to immigration, which has played a significant role in shaping Canada’s demographics. Furthermore, Canada’s working-age population is experiencing faster growth compared to that of the United States, Europe, and the United Kingdom.
In summary, Canada’s current economic landscape is characterized by anemic growth and the challenge of rising debt. However, demographic trends and population growth, fueled by immigration, are providing some stability in the face of these challenges.
Real Estate Activity Expected to Increase in Second Half of 2024
Real estate brokerage firm, Royal LePage, has released a separate report stating their anticipation of increased real estate activity in the second half of 2024. This prediction is based on their belief that the Bank of Canada will soon begin cutting interest rates.
Market analysts are also expecting cuts to be made to the central bank’s benchmark rate. As evidence, the yield on the five-year Canadian government bond has decreased by over one percentage point and currently sits in the 3.3% range. This is a notable decrease from its peak at 4.4% in October.
It’s worth noting that mortgage rates in Canada are typically determined by the five-year yield.
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