One month doesn’t make a trend but if February is any indication, more sellers may be (finally) making their way into Canada’s housing market. Early results from local real estate boards showed notable month-to-month increases in new listings across major markets. This was especially the case in Calgary and Edmonton where a wave of properties put up for sale set the stage for the strongest number of transactions ever recorded in a February. Elsewhere, the impact on activity was generally positive albeit more muted. Buyers still face a dearth of supply, maintaining intense upward pressure on prices. Local real estate boards reported further price acceleration, led by the Fraser Valley, Toronto and Vancouver where property values made big leaps (again) from already sky-high levels in January.

Sellers will play a central role in shaping up this year’s spring season. Should a critical mass of current homeowners see the coming months as an opportune window to list their property—now that interest rates are on the rise and ahead of potential policy actions targeting speculators—it would ease some of the supply restraints, both boosting near-term activity and reducing some of the pressure of prices. If instead the number of sellers doesn’t pick up materially, recent price trends are likely to persist (until interest rates increase sufficiently to curb demand). We expect the next few months to tell much about the future direction of the market and prices.

Toronto area—Prices continue to spike

Buyers dug still deeper into their purchasing budget to come up on top of bidding wars last month. Toronto’s composite MLS Home Price Index jumped a mind-blowing 6.4% from January. That’s an increase of more than $80,000 in a single month! What’s more, it came on the heels of a series of material gains over the past several months (including a $52,000 jump in January) that drove the index up $354,000 (or 35.9%) since February 2021. At $1.34 million, Toronto’s benchmark price is the priciest in Canada—having surpassed the Vancouver benchmark in January. Despite crushingly poor affordability, demand remains exceptionally brisk at this stage. Buyers pounced on a larger offering of homes for sale in February, causing resales to climb 5.9% from January (on a seasonally-adjusted basis). This made it the second-busiest February on record (behind only February 2021). We expect higher interest rates will cool down demand in the area over time. The Toronto area’s sky-high price points and strong presence of investors make the market especially sensitive to rising interest rates.

Montreal area—A slowing trend emerges

The last few months have seen activity moderate in the Montreal area. This partly reflected dwindling supply though demand may have softened as well in the face of deteriorating affordability. A small increase in new listings between January and February was met by a slight monthly decline in resales (on a seasonally-adjusted basis), suggesting some potential buyer fatigue. Demand-supply conditions have eased slightly as a result though remain extremely tight at this time. Significant upward pressure continues to drive up prices for both single-detached homes and condos. Some of the stronger gains are recorded in the suburbs where relatively more affordable properties are the subject of aggressive bidding on the part of buyers. Prices in Laval and the North Shore, in particular, are up significantly. With suburban prices still running at 16% to 30% discounts to Island prices, we expect these dynamics to continue in the near term.

Vancouver area—A step toward market balance

Activity slowed despite more homes being offered for sale last month. Our estimated 6% drop in resales and 12% rise in new listings from January (on a seasonally-adjusted basis) could represent a welcome first step toward more balanced demand-supply conditions in the Vancouver area. We’re still a long way from prices stabilizing though. Still-solid demand and historically low inventories for now keep the heat on property values and will likely continue to do so in the near term. Vancouver’s composite MLS HPI last month rose an outsized 4.6% (or more than $58,000) from January to $1.31 million. The gain over the past year is now an astounding $226,000, or 20.8%. Buyers clearly face an extremely challenging situation. Higher interest rates will make things even more difficult for many, further crushing affordability in the period ahead. We expect this will gradually suppress demand later this year and contribute to the market rebalancing.

Calgary—An upswing for the ages

Calgary (and Edmonton) really stood out in February among Canada’s major markets. Resales continued to boom, soaring another estimated 19% m/m on the heels of gains of 10%, 9% and 15% in the previous three months, respectively. The 3,300 transactions recorded last month were the strongest tally ever for a February in Calgary. A surge in new listings (up an estimated 69% m/m) made this possible. It provided many buyers the options they had been seeking for some time amid shrinking inventories. These new buying opportunities came at a steeper price though. Calgary’s composite MLS HPI soared 5.9% ($27,000) between January and February, pushing up the y/y rate of appreciation to a 15-year high of 16.1%. The wave of homes listed for sale helped temper the (severe) supply shortage but did not eliminate it. Calgary’s market is still very tight and upward price pressure remains intense. We expect further material appreciation in the near term, especially as a booming energy sector stokes buyer confidence.

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Robert Hogue is responsible for providing analysis and forecasts on the Canadian housing market and provincial economies. Robert holds a Master’s degree in economics from Queen’s University and a Bachelor’s degree from Université de Montréal. He joined RBC in 2008.

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