Inventory recovers rapidly in Canada’s largest housing market

Transactions have increased across the board since May, with more buyers entering the housing market. However, purchases have not been enough to absorb the new inventory that has been rebuilding for months. In Canada’s more expensive markets, new listings continue to outpace sales, and inventory continues to grow in the busy Calgary market.

Many sellers are likely timing their moves before interest rates are cut in the hopes that demand will pick up. A rise in new apartment construction in the Toronto area and struggling homeowners, including investors, are likely forcing more property owners to sell.

The influx of supply has shifted bargaining power significantly towards buyers, who in some markets are still extracting price concessions from sellers.

The MLS Home Price Index fell slightly in Vancouver and the Toronto market remains volatile. Price growth also appears to be slowing in Montreal and Calgary. With the delayed effects of high interest rates putting pressure on budgets, most buyers will likely wait for a significant reduction in interest rates before jumping into the market.

Toronto Area — More sellers enter the market

Toronto’s housing market saw another large influx of new listings in June, with sellers beginning to show up. There were nearly 18,000 listings for sale, up 9.3% (seasonally adjusted) from May. The high rate of seller activity is no flash in the pan, either. Inflows have increased for the third consecutive month, with active listings well above last year’s (68%). Condominiums again led the way, up 84% year-over-year, while detached homes were up a smaller but still impressive 56%. A slight increase in sales activity from May (4.2%) helped absorb some of the new listings on the market, but it wasn’t enough to prevent active listings from hitting a 14-year high of 23,600 in June. The recent uptick in activity suggests that the Bank of Canada’s June 5 policy stimulus could help boost home prices.^Number The interest rate cuts went unnoticed. Still, sales activity remains 13% lower than last year. Prices remain fluid. MLS Composite Benchmark prices increased slightly (0.4%) in June, but this was not enough to reverse the sharp price decline that occurred last fall, with prices still down 4.6% year-over-year. Apartments saw the steepest price declines, down 4.7% year-over-year, especially in the 416 (City of Toronto) and Durham Region. We believe interest rates need to fall further to revive prices and activity in Toronto.

Montreal Region — Market Trends Remain Stagnant

Montreal’s housing market was buzzing in June. Transactions increased an estimated 4% from May, halting three consecutive months of declining activity. At the same time, sellers put more properties on the market. A similar increase in supply maintained Montreal’s supply-demand market dynamics, with the ratio of new listings to sales remaining relatively stagnant. A similar surge in buyer and seller activity did little to reduce existing inventory, which had been building throughout the year. We now estimate that the number of active listings is up 24% year-over-year, which is preventing the market from overheating due to competition between buyers. In fact, the median price of detached homes has fallen since May (-1.2%), and condominiums have also slowed slightly. Montreal’s inventory is expected to continue to trend upwards. This will likely keep price growth in check in the coming months.

Vancouver Area — A State of Balance

The increase in sales in June somewhat offset the decline in transactions last month. With a 5% increase on a monthly (seasonally adjusted) basis, sales are estimated to have remained near their 2024 highs. However, this is still not enough to push sales above last year’s level. Another month or two of robust activity is needed before this increase can be reassuringly viewed as a recovery in market activity. The increase in sales activity was accompanied by a further significant increase in new listings, estimated to have risen by 9.5% from May. This has led to active listings continuing to grow, dropping the ratio of sales to new listings to its lowest since January 2023. Price growth has continued to slow for most of this year due to stagnant market trends. However, last month’s strong increase in new listings has led to a slight monthly price decline for the first time since November. The MLS Composite Benchmark Home Price Index is currently up just 0.5% year-over-year. Similar to Toronto, prices of low-density housing in the Greater Vancouver Area have held up better. We expect the influx of multifamily housing to be impacting pricing trends as it increases housing supply and reduces competition for row homes and apartments. In fact, the increase in new listings over the past 12 months has been almost entirely due to medium and high density housing. Meanwhile, the number of single-family homes for sale remains roughly the same as a year ago. We expect inventory to increase further in the coming months as budget-constrained buyers wait for further interest rate reductions before entering the market.

CALGARY — Tough competition drives up prices

Sales increased again in June, bringing sales activity to a five-month high (seasonally adjusted). Sales activity over the past two months has more than offset the steep decline recorded in April, making this spring’s softness appear modest compared to other major Canadian markets. Price growth has slowed since the spring, but remains robust by historical standards and continues to far outperform all other major markets. The MLS Composite Home Price Index is now 8.5% higher than last year, with price growth concentrated in row homes and apartment homes (17% year-over-year). Detached and semi-detached homes posted a smaller but still robust 12% increase year-over-year. As population growth continues to drive demand, we believe the Bank of Canada’s inflection point in monetary policy has been enough to lure more buyers into the market. Despite the significant decline in Calgary home prices in recent years, it remains one of the most affordable major markets we track, providing buyers with a favorable situation compared to other major markets in Ontario and British Columbia. Nevertheless, we expect market activity in Calgary to increase gradually rather than surge as growing budget pressures will likely hold back market activity in the coming months.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis group and analyzes state macroeconomic outlooks and budget commentary.

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