The housing market rebound continues

Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud. 

Bottom line

National house prices rose again in May, but remain 12% below their peak nationally. The renewed strength in the housing market in recent months shows that buyers have adapted to the sharp rise in interest rates, and could suggest that the recent hike by the Bank of Canada may have little impact on housing activity. However, continued low inventories are likely to constrain activity and provide further support to house prices.

In Alberta, housing market activity remained robust by historical standards. However, we note a continued divergence between the metropolitan areas. Prices in Calgary have continued to increase over the past year and the city remains one of the strongest housing markets in Canada, supported by low inventories and the weakest new listings since 2002. On the flip side, the price correction continued in Edmonton, as inventories remain higher. With less froth accumulated during the pandemic, Alberta’s market was less prone to a sharp correction than other regions. In addition, strong migration to Alberta also supports activity and prices compared to elsewhere in the country.

Low interest rates have been one of the main drivers of the housing market, supporting affordability. Despite affordability being at its lowest in decades in many cities (see), housing demand is picking up, supported by the strong labour market, potential buyers resetting their expectations of what they can afford and a fear of missing out. The continued lack of supply in many regions and increased immigration will likely continue to support house prices and prevent further correction, with the health of the labour market likely the key to the outlook for the housing market.

Activity in the Canadian housing market increased by 5.1% m-o-m seasonally-adjusted in May, a fourth consecutive monthly increase. As a result, the number of transactions, at 40.2k, is only slightly lower than on average in 2019 (-1.7%) and than for the same month last year (-2.1%). It is important to note that all the year-on-year comparisons are distorted by the sharp decline in activity a year ago and, as a result, we will focus on the changes compared to 2019. In May, activity was higher in all provinces, led by PEI, Saskatchewan, Alberta, and Quebec. In Alberta, the number of transactions rose (+8.0% m-o-m) in May and activity was more than 40% higher than in 2019.

There continue to be some divergences between provincial markets. Compared to the average level of 2019, the number of transactions is well above its pre-pandemic level in Alberta (+42%), Saskatchewan (+32%), Newfoundland (+13%), and PEI (+13%). On the flip side, activity is well below in Quebec (-19%), Nova Scotia (-17%), Ontario (-11%), and Manitoba (-8%).

New listings rose 6.8% m-o-m seasonally-adjusted in May, a second consecutive month of increase. New listings increased in most provinces, with the biggest gains in BC, New Brunswick, Ontario, and Alberta. New listings declined only in PEI.

With sales activity stronger than new listings in most regions, the month-of-supply measure[1] inched lower to 3.1 nationally, about 1.1 months lower than at the start of year, suggesting a tightening of the labour market. Based on this measure, most provinces have seen a decline in inventories in May, with the exception of Manitoba. Also, inventory levels are still below their 2019 levels in all provinces.

Compared to the highest level of inventory reached during the recent housing market correction, the month-of-supply has decreased the most in BC (2.5 months), PEI (2.1 months), Ontario (1.3 months), and Saskatchewan (1.2 months). It has decreased the least in Manitoba (0.2 months), Quebec (0.3 months), New Brunswick (0.6 months), Nova Scotia (0.6 months), and Newfoundland (0.6 months).

With a month-of-supply at 2.9, Alberta’s housing market is at its tightest since 2007, if we exclude the pandemic.

With a rebound in sales and a continued decline in inventories, the MLS House Price Index rose by 2.1% m-o-m, the most since February 2022. Compared to last year, house prices eased nationally by 8.7% y-o-y. Almost all areas saw higher prices in May, except for Greater Moncton (-2.3% m-o-m) and Edmonton (-0.2% m-o-m). The biggest monthly increases were in Oakville-Milton (+3.9% m-o-m), Greater Toronto (+3.2% m-o-m), Barrie (+2.8% m-o-m), Guelph (+2.3% m-o-m), and Ottawa (+2.0% m-o-m). Prices increased the least in Saskatoon (+0.2% m-o-m), Regina (+0.6% m-o-m), Victoria (0.7% m-o-m), Calgary (+0.8% m-o-m), and Montreal (+0.9% m-o-m).

On a y-o-y basis, almost all regions have seen lower prices, with the most significant declines in Niagara (-16% y-o-y), Barrie (-13% y-o-y), Guelph (-11% y-o-y), and Hamilton-Burlington (-11% y-o-y). However, prices are higher compared to last year in Calgary (+2.4% m-o-m).

Compared to their recent peaks, prices have declined by 11.9% nationally. However, prices are still about 36%% higher than they were in January 2020 on the eve of the pandemic. Compared to their recent peak, prices dropped the most in Niagara (-19%), Barrie (-17%), Hamilton-Burlington (-17%), Guelph (-16%), Vancouver Island (-12%), and Oakville-Milton (-12%). Prices have corrected the least in Saskatoon (-0.7%), Moncton (-4.7%), Regina (-4.7%), and Winnipeg (5.9%). Prices have not declined in Calgary.

In Alberta, benchmark prices rose 0.8% m-o-m and are up 2.4% y-o-y in Calgary and decreased 0.2% m-o-m and -8.8% y-o-y in Edmonton. There continues to be a divergence between the performance in Edmonton and Calgary, likely resulting from continued higher inventories in Edmonton.

In Alberta, the housing market remains robust, with transactions still well above their pre-pandemic level. However, the number of transactions has eased in all regions compared to last year’s same month. (see table below for details). Compared to the average level of transactions in 2019, activity in the province increased by 42%, led by Calgary (+63%), South Central Alberta (+51%), Lloydminster (+43%), Central Alberta (+38%), and Edmonton (+32%).

New listings increased on the month at the provincial level. Compared to the average level of new listings in 2019, new supply in the province decreased by 12.2% and was lower in all regions. New listings declined the most compared to 2019 in South Central Alberta (-32%),  Alberta West (-31%), Medicine Hat (-20%), Central Alberta (-18%), Lloydminster (-15%), Grande Prairie (-14%), and Lethbridge (-14%).

With sales stronger than new listings in recent months, many regions have seen a tightening of their housing markets. The primary seller’s markets are Calgary, South Central Alberta, Lethbridge, and Medicine Hat. The main buyer’s markets are Fort McMurray, Grande Prairie, Lloydminster and Alberta West.

Average house prices have declined slightly (-0.9% y-o-y) on a 3-month moving average of the year-on-year in the province, with lower prices in many regions. The biggest house price declines were in Fort McMurray (-15.6%), Lloydminster (-5.8%), Edmonton (-5.3%), Central Alberta (-4.8%), and Grande Prairie (-4.6%). Prices increased in South Central Alberta (+3.9%), Alberta West (+2.7%) and Calgary (+2.2%).

[1] The month of supply measures how many months is would take at current sales volume and without an increase in listings to bring inventories to 0.