As the summer draws to a close, it’s becoming increasingly evident the fireworks have ended in housing markets across Canada. Early reports from local real estate boards confirmed home resales last month continued to broadly moderate toward (still-solid) pre-pandemic levels. A calmer tone is gradually setting in. It doesn’t mean things are back to normal. Inventories remain exceptionally low in many places—including Toronto, Montreal, Vancouver and the Fraser Valley. Buyers continue to struggle to find suitable options. Bidding wars are still the norm, despite attracting fewer participants than they did a few months ago. And tight demand-supply conditions are keeping prices at lofty levels, up significantly from a year ago in most markets. Property values also generally increased between July and August. But signs of fatigue have emerged. Waning buyer fervour is producing a diminished pace of price increases. Some markets such as Ottawa, Montreal and Edmonton have even seen property values level off in recent months. We expect this trend to spread to other markets as affordability issues weigh more heavily on buyers, and the reopening of spending avenues take some budget room away from housing. That said, anyone hoping for significant price concessions from sellers will likely be disappointed. We expect demand-supply conditions to stay abnormally tight for a while in the majority of major markets, maintaining strong protection against any major price downslide.



Major market highlights: August 2021

Toronto area—Tight supply a growing constraint

The Toronto Regional Real Estate Board estimated home resales fell 2.7% m/m in August on a seasonally-adjusted basis — the fifth-straight monthly decline. Still, the 8,596 transactions that were recorded represented the third-highest tally for August. It likely would have been even stronger had more properties been available for sale. Inventories were down 51% from a year ago. Clearly low supply remains a significant restraining factor in the region. Tight demand-supply conditions keep sellers in the driver’s seat. Yet buyers have become more conservative in their offers after a year of soaring prices. The annual rate of increase in the MLS Home Price Index (17.4%) has slowed in the past two months. Most of the strength continues to be in the single-family home segment where the index is up 21.8% y/y. The increase in condo prices is more moderate at 8.1%. Buyers are increasingly taking notice of condos’ greater relative affordability. With pandemic restrictions easing and downtown living becoming trendy again, condos are attracting a lot more interest. Condo sales were up 11% y/y in August, in sharp contrast to the 32% drop in single-family homes.



Montreal area—Marked slowdown in activity amid low inventories

August provided the strongest sign yet Montreal’s housing market is off the boil. Home resales fell 30% y/y. By our own calculation, this corresponded to a sizable 15% decline from July on a seasonally-adjusted basis. While the easing of restrictions gave locals many reasons to take their minds off housing, extremely low inventories has complicated house-hunting significantly, which may have discouraged some buyers. The slowdown in activity was widespread across the region and housing segments. Prices have levelled off since June though this mainly reflected the situation for single-family homes. Condo prices have maintained solid upward momentum, as buyers gravitated toward more affordable options, especially in the north and south shores. Median condo prices, in fact, have appreciated more (20%) over the past year than single-family homes (17%).



Vancouver area—Soft landing on track

The market continued to make its way toward more sustainable levels of activity in August. We estimate home resales fell slightly by just over 1% from July on a seasonally-adjusted basis, extending the declining trend to five months. While the recent stretch allowed some heat to dissipate, the market is still far from ‘cool’. Resales remain well above pre-pandemic levels, but the market is short of supply, and inventories are low—and trending lower—while prices keep on rising. Nonetheless, the partial heat loss has slowed down the pace of price escalation. The MLS HPI in August was up 13.2% y/y, which compared to 13.8% in July and a cycle high of 14.5% in June. Single-family homes (up 20.4% y/y in August) account for most of the index’s appreciation. Condos prices increased only 7.6%.



Calgary—Activity moderating but still brisk

The market is maintaining solid momentum despite further moderation from the winter’s spike in activity. We reckon home resales fell a modest 2% m/m in August, which kept the monthly tally at a very strong 37% above year-ago levels. Demand-supply conditions are generally tight though condo buyers can still pick from plentiful inventories. Active condo listings were up 7% y/y last month, contrasting sharply with a 14% decline in single-family home listings. It’s not surprising that condo prices are rising more slowly (up 2.3% y/y) than single-family home prices (up 10.6%). Overall, Calgary’s MLS HPI decelerated for the second-straight month to a rate of 9.4% y/y in August from 11.0% in July and 12.0% in June.



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Robert Hogue is a member of the Macroeconomic and Regional Analysis Group, with RBC Economics. He is responsible for providing analysis and forecasts for the Canadian housing market and for the provincial economies. His publications include Housing Trends and Affordability, Provincial Outlook and provincial budget commentaries.

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