High interest rates and heterogeneous changes in residential real estate prices. How does the Canadian real estate market feel in 2024?

The Canadian real estate market has undergone significant changes since 2020. From record sales figures in 2020-2021 to a slowdown in activity in 2022-2023. In 2024, the market is showing signs of recovery, but remains in standby mode. In this analysis, we will look at the current state of the market, housing prices in major cities, rental market trends and the impact of immigration on Canada’s housing sector.

A retrospective: Canada’s real estate market 2020-2023

In 2020, the Canadian real estate market set a record for the number of purchase and sale transactions with residential real estate, and in 2021 it broke it. In 2020, more than 550 thousand residential real estate transactions were made in the Canadian housing market (14-15 transactions per thousand residents), and by the end of 2021, almost 665,538 housing transactions were registered in the country (in terms of one thousand residents, this is 17-18 transactions).

There were several reasons for the record performance in the market, but the main one was the reduction in interest rates. In March 2020, the Central Bank of Canada lowered the interest rate three times in a row: if at the beginning of March it was 1.75%, then at the end it was already 0.25%, and this was a historical minimum. Such drastic measures on the part of the bank were aimed at overcoming the economic consequences due to the COVID-19 pandemic that began in December 2019, as well as a sharp drop in world oil prices (and Canada’s economic well-being largely depends on energy exports).

Record low interest rates have caused an unprecedented boom in the real estate market — loans have become much more affordable, which has led to increased investment in the real estate market and increased consumer activity. And high demand stimulated supply in the market.

However, as the pandemic came to an end, inflation began to rise in Canada, as well as the economic consequences of the pandemic gained momentum. Inflation reached its peak in the summer of 2022 and amounted to 8.1%. In order to keep it at an acceptable level, the Central Bank of Canada began to raise the interest rate. In a short period — from March 2022 to July 2023 — the Central Bank raised the interest rate to 5%. This is the highest value since 2001.

The reaction of the real estate market was as follows: a decrease in activity and, consequently, a decrease in the flow of investments into the residential real estate market, as well as a drop in construction volumes. By the end of 2023, activity in the Canadian residential real estate market amounted to 11 transactions per one thousand people.

Current situation: The Canadian housing market in 2024

Based on the results of the first half of 2024, we can say that there have been positive developments in the Canadian real estate market, but the market itself can be characterized by the phrase “on standby”. It is worth adding that in early June, the Central Bank of Canada lowered the interest rate from 5% to 4.75% — what impact this will have on the Canadian real estate market and whether rates will decrease further will become known only after the results of the 3rd and 4th quarters.

According to the WOWA portal.CA, in the first 5 months of 2024, 192,227 transactions were made in the Canadian housing market, which is 9.1% more than in the first 5 months of 2023. If we compare quarterly figures, in the 1st quarter of 2024, 117,081 residential real estate transactions were completed in Canada, which is 8% more than in the 4th quarter of 2023, and 27.1% more than in the 1st quarter of 2023. There are no final data for the 2nd quarter of 2024 yet. In April-May, the total number of transactions amounted to 75,146 transactions.

Overview of real estate prices by province

Let’s look at the current prices in the Canadian residential real estate market by provinces and 5 major cities. All prices will be presented in US dollars (USD) per unit of housing.

By the end of May 2024, average home purchase prices increased in almost all provinces, when compared with prices that were a year ago. Such conclusions can be drawn based on the data published on the WOWA portal.CA The largest increases were recorded in the provinces of Newfoundland and Labrador (+12.6%), New Brunswick (+8.4%) and Alberta (+8.0%). In the provinces of British Columbia and Ontario prices decreased by 1.5% and 3.7%, respectively.

Before going directly to the cost of housing in cities, let’s identify the types of residential real estate that can be bought in Canada.

The WOWA portal.CA identifies 5 types of residential real estate:

• Detached home (Single—family house) is a detached residential building designed for single-family living. Legally, such a house is a single residential unit.
• Semi-detached home (Semi-detached house) — this is a residential detached house, which consists of two apartments separated by a common wall. Each apartment in such a house has its own entrance and adjacent territory. The market analysis will indicate the cost of an apartment in such a house.
• Townhouses — this is a complex of low-rise residential buildings with several apartments, the houses are connected by a common wall. Each apartment in the townhouses has its own separate entrance, as well as an adjacent territory. The market analysis will indicate the cost of an apartment in a townhouse.
• Condo apartment (Apartment) — these are apartments in condominiums. These are residential complexes with common areas such as corridors, parking lots, stairwells, elevators and so on. Different residential complexes may have different common areas: so modern residential complexes can include gyms, bicycle storage areas, a well-maintained house territory with various activities.
• Plexes (Plex apartments) — these are multi-storey buildings with several separate blocks, usually one for each floor. The entrance to each block is usually accessible through an external entrance, and the upper floors are connected by stairs. The market analysis indicates the cost of an apartment block in such a house.

Toronto

By the end of June 2024, according to WOWA data.For example, there were 6,213 residential real estate purchase and sale transactions in the Toronto real estate market – this is 11.4% less than in the previous month and 16.9% less than in June last year.

So, in June 2024, 17,964 new listings were put up for sale, and the monthly ratio of real estate sold to new offers was 35% (last month it was 38%). This downward movement indicates that demand is growing more slowly than the supply of affordable housing on the market. If the ratio of sold real estate to new offers in the market is below 40%, then such a market is a buyer’s market.

Market structure

Montreal

By the end of May 2024, 4,563 residential real estate transactions were registered in Montreal, which is 2.7% less than in April this year and 3% more than in May 2023.

In May, there were 7005 new residential property listings on the Montreal market. The monthly ratio of real estate sold to new offers was 65%. If the monthly ratio of real estate sold to new offers is more than 60%, then the market can be called the sellers’ market.

Market structure

Calgary

By the end of June 2024, 2,738 purchase and sale transactions were made in the Calgary residential real estate market, which is 11.4% less than in the previous month and 13.0% less than in June last year.

In June of this year, there were 3,798 new residential property listings in Calgary. The monthly ratio of real estate sold to new offers was 72%, which characterizes the market as a seller’s market.

Market structure

Edmonton

In May, 3,220 residential properties were sold in Edmonton — 2.9% more than in April this year and 18.4% more than in May last year. The monthly ratio of real estate sold to new offers in May was 74%, indicating that the Montreal residential real estate market is a seller’s market.

Market structure

Vancouver

In June, 2,418 residential real estate purchase and sale transactions were completed in Vancouver, which is 11.5% less than in May this year and 19.1% less than in June last year.

The number of new home sales announcements in June was 5,723, and the monthly ratio of real estate sold to new offers in June was 42%. This characterizes the Vancouver residential real estate market as a balanced market.

Market structure

Canada’s rental market: trends and prices

Let’s take a closer look at the actual amount of rent in Canada in May 2024 based on the same 5 cities on the basis of which purchase prices were considered.

The data on the amount of rent is taken from the portal RENTALS.CA . The rent and its changes are presented in Canadian Dollars (CAD). According to the Central Bank of Canada, in May 2024, 1 Canadian dollar was equal to 0.7315 US dollars.

The amount of rent is presented for an apartment in CAD depending on the number of bedrooms:

• 1B is a 1—bedroom apartment.
• 2B is a 2—bedroom apartment.
• 3B is a 3—bedroom apartment.

Immigration and its impact on the Canadian real estate market

Statistics Canada reported that on January 1, 2024, the population of Canada reached 40.769,890 inhabitants, which is 1.27 million more than on January 1, 2023. For comparison, it is worth saying that in 2020, a little more than 38 million people lived in Canada. residents. The statistical office also stated that this is the highest annual population growth (+3.2%) in Canada since 1957 (then it was +3.3%).

Such a high population growth was achieved through temporary immigration. Without temporary immigration, relying solely on permanent immigration and natural growth, Canada’s population growth would have been almost three times less (+1.2%), the Canadian Statistical Office reports.

Throughout 2023, almost all population growth was provided by international migration (permanent and temporary): it amounted to 97.6%, and the remaining 2.4% is a natural increase.

The Department of Immigration, Refugees and Citizenship of Canada reports that in 2023, 471,711 permanent immigrants chose Canada as their new home. It is also reported that permanent immigration has increased in all provinces and territories of Canada, with the exception of Nova Scotia and Quebec.

In 2023, the population increased by another 804,901 people who had the status of non-permanent residents of Canada. Most of them are temporary workers who provide the Canadian labor market; followed by international students. It is reported that 1 in 10 non-permanent residents is an asylum seeker.

Population estimates state that as of January 1, 2024, 2,661,784 non—residents lived in Canada, 88% of whom are holders of a residence permit in Canada and their family members; the remaining 12% are asylum seekers with or without a work/study permit.

The growth rate of the population cannot but affect the housing market. Thus, the Ministry of Immigration, Refugees and Citizenship of the country states that the growth rate of Canada’s population, provided by immigration, exceeds the growth in the number of affordable housing units.

This is primarily reflected in the rental housing market: immigration plays an important role in stimulating demand in this market in major Canadian cities. Increased demand in conditions of limited supply inevitably leads to an increase in rental rates.

The impact of immigration is also noticeable in the housing purchase and sale market. In many Canadian cities, where the number of residents is growing every year due to new migrants, there is an increased demand for housing (which significantly exceeds the supply).

It is also worth noting that now in Canada the pace of construction and commissioning of new housing is lower than in previous periods and it is expected that they will decrease by the end of the year, and an improvement in the construction sector is projected only in the next 2 years. Increased demand and a possible shortage of new housing leads to higher prices, and high interest rates on loans only exacerbate the current situation.

However, it is worth adding that immigration and increased demand for housing attract investment in Canadian real estate. Many foreigners consider Canada a safe place to invest their funds, which is certainly true. However, when loan rates are high, the construction sector constantly faces bureaucratic delays, and the labor market faces a shortage of labor — this raises concerns about how quickly a particular construction project will be implemented and how quickly the invested finances will begin to pay for themselves.

Canadians themselves react to the increase in immigration in different ways. According to a survey conducted by CBC NEWS, three out of four Canadians say that rising immigration is exacerbating the housing crisis, as well as putting pressure on the health care system. Almost two thirds of the respondents believe that the influx of new migrants increases the burden on the education system.

About three quarters of respondents agreed that increased immigration contributes to cultural diversity, and 63% of respondents said that the flows of young migrants contribute to the formation of the labor force and the tax base.

It is worth saying that investments in residential real estate in Canada by foreigners are quite limited income. Foreigners can invest in real estate, but the purchase of property is prohibited for them. The exception is foreigners who have a work permit in In Canada, they are students, apply for refugee status and meet certain criteria.

Author

Roman Tomashevich Analyst

I show the situation on the real estate market in graphs and figures.

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