Canadian Housing Update 7: Mortgage Rates Drop!!

Mortgage Rates Drop!!

Can’t say we were surprised when banks across Canada dropped their 5-year mortgage rates. This may only be the start as supply fell slightly but demand dropped even further. Affordability is still the issue and incomes are not rising fast enough to match the rapid rise in interest rates. The second issue is the job market continues to weaken with unemployment hitting 5.7% for October.

Key Stats for October

Median Toronto prices are down about 0.5%, down about 3.0% downtown
Median Vancouver prices are flat, down about 5.0% downtown
Active Listings came down slightly
Homes Sold are approaching COVID lows, the worst November in 10 years
Suburban Area prices were generally flat in aggregate for October.

Topics

Mortgage Rates Drop - This is expected and new projections are for faster drops upcoming than before.

Sales Continue to Drop - Properties sold continue to fall with some areas lower than COVID lows, while others are a little above.

Listing vs. Buying Remain Wide - Days on the market continue to grow, especially in the higher-end homes.

Mortgage Rates Drop

Banks are usually ahead of the curve (because they essentially control it), they usually raise mortgage rates before the central bank raises and cut before the central bank cuts. They have the inside edge of what the Bank of Canada will do and make a judgment call on that knowledge. The drop in inflation and the weakness in the Canadian economy have led to a cut in Mortgage rates in October. Three large banks cut between 0.15% and 0.25%, on top of this some of the smaller banks cut their rates by about 0.30%. These are just the posted special rates, but the largest drops have come in the 3 and 4-year rates which were as much as 0.45%.

The Banks hate cutting rates and they will do it at a much slower pace than they raise rates. Do expect these rates to continue to drop as Canada is now expecting a 0.25% cut by March and 0.50% by June. When this happens Banks will generally cut the discount to variable rates to deter people from taking the variable, which is happening as we speak. 

This should give the housing market some relief but very little as demand remains weak at these prices. The renewal rates are still much higher than before, but this is some relief, especially for those who can wait until later in 2024 to renew. 

Sales Continue to Drop

Difficult to pull data from the drop in sales for November, December, and January because seasonally they are always weak. But they are exceptionally weak this time around the GTA (all six boroughs) closed on only ~3,800 properties, during the first COVID shutdown in March of 2020 there were 2,961 homes sold. The average for November would be around 7,000 homes sold. This will be the worst November in the past 10 years for total homes sold. This is similar in the VTA (Greater Vancouver area) where homes sold are about 1,200 vs. a COVID low of 1,145. In comparison to the beginning of the COVID lows are interesting because many people were not allowed to step into a home before buying them.

Listing vs. Buying Remain Wide

The housing supply has tapered off a bit but sales have also decreased. This does indicate many people are pulling their homes off the market. The lack of demand has led to homes being left on the market longer, especially the higher-end homes.

Toronto Days on the Market

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Vancouver Days on the Market

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It was very common for homes to have a bidding war within a day of being listed but now we are getting closer to a 30-day average list time for most homes. 

Summary

The Canadian Housing market continues to struggle and there are not any short-term events that would signal any improvement. Canadian GDP came in an annualized 1.1% today which means we narrowly escaped a technical recession for the second time this year. Unemployment is moving in the wrong direction at 5.7%, with the total unemployed jumping by 40,000 last month. While the next couple of months will not tell the true story (due to seasonality) the spring will need to provide better affordability and strong employment to reverse the current trend.

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Sincerely,

Justin, Konrad, and Merriel

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Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

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