Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Housing activity weakened in October for a fourth consecutive month, while national house prices fell for a second month. The decline in housing activity comes after the Bank of Canada increased its policy rate in June and July. Moreover, with sales weaker than new listings, inventories increased nationally, providing some slack and likely putting some drag on prices but remaining low by historical standards.
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 strong population growth. On the flip side, Edmonton, while showing some sign of improvement, continues to underperform as inventories remain higher. Strong migration into Alberta and affordability are significant supports for activity and prices compared to elsewhere in the country.
Low interest rates have been one of the main drivers of the housing market in recent years, supporting affordability. The latest rise in interest rates is pushing affordability to be at its lowest in decades in many cities. After a rebound earlier this year, it is clear that the 50bp increase by the Bank of Canada in June and June is cooling the housing demand. The question is whether it will rebound once households adjust to the new reality once interest rates stabilize as they did earlier this year. The continued lack of supply in many regions and strong immigration will likely support house prices. It could prevent a big correction, with the health of the labour market likely the key to the outlook for the housing market.
Activity in the Canadian housing market dropped by 5.6% m-o-m seasonally-adjusted in October, the fourth consecutive month of decline. As a result, the number of transactions, at 35.4k, is slightly lower than for the same month last year (-0.7% y-o-y). In October, activity was lower in almost all provinces, except in New Brunswick (+2.2% m-o-m). Activity declined the most in PEI (-15.3% m-o-m), Alberta (-8.3% m-o-m), BC (-6.9% m-o-m), and Ontario (-5.5% m-o-m).
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 (+48%), Saskatchewan (+37%), and Newfoundland (+33%). On the flip side, activity is well below in Ontario (-31%), Quebec (-21%), Nova Scotia (-16%), and PEI (-14%).
New listings fell 2.3% m-o-m seasonally-adjusted in October. New listings decreased in most provinces, with the biggest losses in Saskatchewan (-5.8% m-o-m), Nova Scotia (-4.4% m-o-m), BC (-4.0% m-o-m), and Ontario (-3.0% m-o-m). New listings increased in Manitoba (+2.2% m-o-m), Quebec (+0.7% m-o-m), and Newfoundland (+0.4% m-o-m).
With sales activity being weaker than new listings in almost every region, the month-of-supply measure[1] jumped higher to 4.1 nationally, but still slightly below where it was at the start of the pandemic. Based on this measure, PEI, BC, Ontario, and Quebec saw the biggest increase in inventories in October, while inventories declined in Newfoundland.
Compared to the highest level of inventory reached during the recent housing market correction in 2022, most markets still have a lower month-of-supply, with the biggest decrease in Newfoundland (2.1 months), Saskatchewan (1.7 months), Alberta (-1.2 months), and PEI (-1.0 months).
Inventories are at their lowest in Alberta (2.7 months), Manitoba (2.8 months), and New Brunswick (3.3 months) and at their highest in PEI (6.4 months), Newfoundland (5.5 months), Quebec (5.4 months), and BC (5.2 months).
With a month-of-supply at 2.5, Alberta’s housing market remains close to its tightest since 2007 if we exclude the pandemic.
With reduced sales and higher inventories, the MLS House Price Index eased by 0.8% m-o-m, the first decline in price since March 2023. This is the second consecutive monthly decline. Compared to last year, house prices nationally have increased by 1.1% y-o-y.
The biggest monthly price decreases were in Hamilton-Burlington (-2.4% m-o-m), Guelph (-2.2% m-o-m), Toronto (-1.7% m-o-m), Oakville-Milton (-1.7% m-o-m), and Niagara (-1.2% m-o-m). Prices increased the most in Moncton (+1.4% m-o-m), Okanagan (+1.3% m-o-m), Calgary (+1.1% m-o-m), Regina (+1.0% m-o-m), and Saskatoon (+0.8% m-o-m).
On a y-o-y basis, most regions have seen higher prices, with the most significant increases in Moncton (+9.9% y-o-y), Calgary (+9.4% y-o-y), BC Lower Mainland (+3.9% y-o-y), Saskatoon (+3.6% y-o-y), and Montreal (+3.5% m-o-m). Prices declined compared to last year in Niagara (-1.8% y-o-y), Regina (-1.1% y-o-y), and Hamilton-Burlington (-0.3% y-o-y).
Compared to their recent peaks, prices have declined by 11.0% nationally. However, prices are still almost 40% higher than they were in January 2020 on the eve of the pandemic. Compared to their recent peak, prices dropped the most in Hamilton-Burlington (-19%), Oakville-Milton (-18%), Niagara (-17%), Guelph (-16%), Barrie (-16%), and Toronto (-13%). Prices have corrected the least in Montreal (-2.8%), Regina (-4.2%) and Winnipeg (-4.4%). In contrast, prices have continued to increase in Calgary (+10.6%), Moncton (+8.8%), and Saskatoon (+5.6%).
In Alberta, benchmark prices rose 1.1% m-o-m and are up 9.4% y-o-y in Calgary, 0.3% m-o-m, and +0.6 % 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. However, the gap between both cities continues to narrow, as Edmonton is benefitting from strong population growth.
In Alberta, the housing market is slowing but remains robust, with transactions still well above their pre-pandemic level. The number of transactions has increased in all regions compared to the same month last year. (see table below for details). Compared to the average level of transactions in 2019, activity in the province increased by 48%, led by Calgary (+65%), Central Alberta (+54%), Edmonton (42%), South Central Alberta (+42%), and Lloydminster (+36%).
New listings decreased in October but remained higher compared to the same month last year at the provincial level. However, there were some important declines in new listings on a 3-month moving average of the year-on-year in Lloydminster (-20%) and Grande Prairie (-16%), while new listings have increased 15.4% in Calgary. Compared to the average level of new listings in 2019, new supply in the province increased by 6.5% and was lower in most regions except in Calgary (+19%) and Edmonton (+8%). New listings declined the most compared to 2019 in South Central Alberta (-32%), Medicine Hat (+25%), Lethbridge (-23%), Alberta West (-23%), and Grande Prairie (-19%).
With sales weaker than new listings in October, many regions have seen a loosening of their housing markets. The primary seller’s markets are South Central Alberta, Lethbridge, Medicine Hat, Calgary, Grande Prairie, and Central Alberta.
Average house prices increased by 5.4% on a 3-month moving average of the year-on-year in the province. Prices increased in almost all regions, led by Central Alberta (+13.2%), South Central Alberta (+12.5%), Lloydminster (+9.5%), Medicine Hat (+9.1), and Calgary (+7.7%). However, prices declined over the same period in Fort McMurray (-7.5%).
[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.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.