Canada's housing market is seeing a significant increase in the number of homes for sale, leading to a potential boost in affordability and raising hopes for future interest rate cuts, according to BMO's chief economist.
In his recent analysis of the Canadian Real Estate Association (CREA) data, Douglas Porter highlighted that the market's calmness is a positive development. "When it comes to Canadian housing, calm is good," Porter emphasized.
The latest CREA data shows that new listings rose by 2.8 percent from March to April, while seasonally adjusted sales dropped by 1.7 percent during the same period. This combination resulted in a 6.5 percent increase in total home listings.
Porter pointed out that soft sales activity in Canada's most expensive cities played a key role in this trend. For example, sales fell by 3.4 percent month-over-month in Montreal and Toronto and decreased by around six percent in Calgary, Ottawa, and Halifax. As a result, home prices dropped by 1.8 percent compared to April 2023. "The lack of buyer enthusiasm has kept a tight lid on prices, a welcome development given the extreme unaffordability in the housing market," Porter wrote.
Regarding interest rate cuts, Porter suggests that the current market conditions might make it easier for the Bank of Canada to consider lowering rates without sparking a sudden rise in prices. "Cooler home prices and more ample listings slightly increase the chances of rate relief in coming months," he noted.
However, the future of housing affordability remains uncertain due to the slow pace of new building projects. This year, housing starts are expected to struggle to reach last year's total of 240,000 units, which is only half of the federal budget target for 2024. Additionally, many of these new housing starts are multi-unit buildings, which take longer to complete. This suggests that new supply will not significantly improve affordability in the near future.
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