Canada’s Metro Real Estate Boom: October’s Surprising Sales Surge, Rising Inventories, and 2024 Market Outlook

Canadian Real Estate Metro Report: October Surges and What It Means for 2024

The real estate markets across Canada’s major metro areas saw an unexpected surge in October, signalling a strong rebound driven by several factors. Key cities like Toronto, Vancouver, Calgary, and Edmonton posted substantial gains in home sales, with some areas seeing their largest month-over-month increases since COVID-19. This uptick comes amid a period of pent-up demand, as well-qualified buyers who had been sitting on the sidelines finally stepped in, encouraged by more stable interest rates and a steadying market. Let’s dive into the October data and analyze what it could mean for the rest of 2024 and beyond.

Before you read on I caution you that all areas have specific trends and this is not a "we're back to a hot market" article. It's just a step forward.

Sales Surges Across Major Cities

The most striking trend in October was the sheer scale of month-over-month sales growth in several Canadian metro areas. According to the data:

• Toronto experienced a 14% month-over-month sales increase and a notable 44% rise year-over-year.

• Vancouver saw a 20% monthly spike, representing the second-largest monthly increase since COVID-19 restrictions were lifted.

• Calgary and Edmonton also witnessed sales growth, with Calgary showing a modest 9% increase, while Edmonton surged by a substantial 37% year-over-year.

These increases are largely attributed to a combination of factors: an easing of interest rate hikes, which has boosted consumer confidence, and pent-up demand from buyers who have been waiting for a more predictable market. With the Bank of Canada holding off on further interest rate hikes, well-qualified buyers feel more secure, prompting them to re-enter the market, particularly in regions like Ontario and British Columbia, where demand had previously been suppressed.

Inventory Levels: A Tale of Two Markets

While sales are booming, inventory levels present a more complex picture, varying significantly by region:

• Toronto has seen a 25% increase in active listings, marking the highest levels since the Financial Crisis.

• Vancouver’s inventory levels remain elevated, with active listings up 25% year-over-year.

• Calgary has experienced an even sharper 55% increase in listings, particularly in the condo segment, which saw a nearly 70% rise year-over-year.

The contrasting trends in sales and inventory levels point to potential oversupply in some markets. For example, the surge in condo listings in Calgary and Toronto suggests that while there’s demand, supply is beginning to outpace it in some segments. This could lead to a moderating effect on prices if the trend continues into 2024, particularly in the condo markets, where supply typically responds more quickly to demand shifts.

Market Balances Improving, But Challenges Remain

An analysis of the sales-to-new listings ratio provides further insight into the market’s overall health. In Toronto, the ratio saw a dramatic improvement, moving out of the “danger zone” (below 40%), which typically precedes major price declines if it persists. Vancouver’s market balance also improved, with its sales-to-new listings ratio jumping by 8 percentage points.

Months of inventory, another crucial metric, improved sharply across most major metros, indicating that sales have begun to catch up with supply. Both the single-family and condo markets tightened relative to last year, reducing the risk of major price corrections in the immediate future. However, the data also suggests that price stability might be temporary if new listings continue to flow into the market at elevated rates.

Pricing Trends: Firming but with Regional Differences

October saw only a modest shift in prices, with Toronto’s MLS House Price Index (HPI) nudging up by 0.1% after a slight decline in September. Vancouver, however, experienced a more significant decline in its HPI, dropping by 0.6%, the largest since late 2022. This variation in price trends reflects differing supply-demand balances, with Toronto leaning towards stabilisation and Vancouver experiencing a lag due to high inventory.

In the rental market, Toronto’s condo leasing activity was up 29% year-over-year, but new rental supply is flooding the market, with new listings jumping by 46% year-over-year. This drove down the lease-list ratio to one of the lowest in the past decade, pointing to softening rental demand relative to supply. Consequently, rents have shown signs of declining, driven largely by an oversupply of new units hitting the market.

Population and Policy Challenges Ahead

Looking beyond October, several macroeconomic factors could impact real estate trends in Canada’s major metros. Key among these is a potential second Trump presidency in the US, which could influence Canadian trade, investment, and ultimately, GDP growth. The most immediate risk is the imposition of tariffs on Canadian exports, which could slow economic growth in manufacturing hubs, particularly in Ontario. Lower economic growth would likely translate to more conservative real estate demand, especially in regions with heavy reliance on manufacturing.

Additionally, Canada’s population growth—a primary driver of housing demand—may be decelerating faster than expected. Companies like Rogers Communications and BCE have cited a slowdown in subscriber growth, attributing it to fewer newcomers entering Canada. If this trend continues, it could weaken the demand for rental and starter homes, particularly in metro areas like Toronto and Vancouver that have historically attracted a large share of new immigrants.

Outlook for 2024 and Beyond

The outlook for Canada’s real estate market remains cautiously optimistic, but there are signs that the current surge may not last beyond mid-2024. Several factors will likely influence the market’s trajectory in the coming months:

• Interest Rates: If the Bank of Canada maintains its current stance on rates, we can expect a stabilising effect on buyer confidence. However, if inflationary pressures resurface, further rate hikes could dampen demand.

• Inventory and New Listings: The steady flow of new listings, especially in condos, could lead to a more balanced or even buyer-friendly market by mid-2024, especially in regions like Calgary and Toronto.

• Macro Factors: The impact of a Trump presidency on Canadian economic policies could influence business investment and GDP growth, indirectly affecting real estate demand.

In the long term, real estate professionals should closely monitor the slowdown in population growth, as it directly influences rental demand and entry-level home sales. As rental trends soften, cash flow for prospective condo investors is improving. The overall cash flow index, which measures profitability for investors, is close to breakeven when factoring in principal repayment. However, sustained rental oversupply could challenge this balance.

Conclusion

October’s data paints a picture of renewed energy in Canada’s real estate market, with demand surging and inventory levels rising. This period of growth, however, is tempered by challenges ahead, including potential economic shifts from US policy changes, a deceleration in population growth, and a likely moderation in demand as we move into 2025. For real estate professionals, understanding these trends and anticipating market shifts will be essential to navigating the complex landscape in 2024 and beyond. Whether you’re advising buyers, sellers, or investors, the message is clear: stay informed, adaptable, and proactive in a rapidly evolving market.

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All data and visuals in this blog post are sourced from the “Metro Deep Dive: October Data Report” by Edge Analytics, November 2024. This report provides comprehensive insights and statistics on Canadian real estate trends, specifically highlighting recent market movements in major metro areas including Toronto, Vancouver, Calgary, and Edmonton. For further details and in-depth analysis, please refer to the original Edge Analytics report.