Buyers have returned to Canada’s housing market. When will sellers follow?

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Canada’s housing market continues to bounce back this spring as appetite from buyers is “vastly outpacing” supply coming from sellers, according to the Canadian Real Estate Association.

But even without meaningful relief to Canada’s tight supply, CREA’s senior economist says the housing market cycle could yield some openings for first-time buyers in the months to come.

The real estate association said in a release Monday that April’s home sales “surged” 11.3 per cent from March, following a trend that’s seen activity in the housing market pick back up since the start of 2023.

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The market has been warming this spring after a rapid rise in interest rates put a chill on buying and selling activity. Last month’s sales remained nearly 20 per cent below the number of homes sold in April 2022, however, when the housing market was still riding pandemic-era highs tied to low rates.

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The pickup in sales has been tied to the Greater Toronto Area and lower mainland in British Columbia, CREA said.

“With interest rates at a top, and home prices at a bottom, it wasn’t all that surprising to see buyers jumping off the sidelines and back into the market in April,” said CREA senior economist Shaun Cathcart in a statement.

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But these buyers are seemingly snapping up the few properties available on the market without letting supply build, CREA said.

The sales-to-new-listings ratio jumped up to 70.2 per cent in April, compared with 64.1 per cent in March and the long-term average of 55.1 per cent.

In a follow-up interview with Global News on Monday, Cathcart explained that Canada’s supply problem didn’t go away during the recent housing market slowdown, it was just “camouflaged” by the drop-off in demand tied to higher rates.

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While buyers might have come back with a bit more certainty in their financial planning, the calculus is a bit more complicated for sellers.

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The rapid rise in interest rates has not yet spurred a round of forced selling from existing homeowners, says Andrey Pavlov, finance professor at Simon Fraser University’s Beedie School of Business.

He tells Global News that many households have been able to stomach the higher mortgage costs and have, in some cases, been given some relief on their rates as lenders extend the amortization of their loans to keep payments manageable — something the federal government dictated in its 2023 budget in March.

In the meantime, homeowners that can afford to wait have been holding on to their properties in hopes of getting a better deal, Pavlov says. Now that prices appear to be nearing a bottom, they could start to list again or hold on a bit longer in hopes of eking out the best price possible.

“The two effects are going to compete,” Pavlov says, though he expects at least some uptick in listings to follow.

“We’re going to see a higher number of homes for sale. There’s no question about that.”

Opening for first-time buyers

Cathcart did note that the first week of May has seen a “burst of new supply,” suggesting some of those who bought last month might now be listing their properties.

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“This is a buy-first market, and once you’ve secured something that is more suitable for you than what you already have, then you put yours up for sale,” he tells Global News.

Cathcart says that those trying to enter the market should be encouraged by signs of more buying activity these past few months, because existing homeowners are going to have to vacate their properties before the entry-level homes they’re living in come back onto the market.

“This can keep the market churning and keep people moving around … and ultimately free up some supply at some point for first-time buyers,” he says.

“I think that’s what we saw the start of in April.”

Whether first-time buyers can afford to break into that market is another question, as higher borrowing costs come up against housing prices that are starting to climb again.

The average selling price of a home in Canada last month was $716,000 on a non-seasonally adjusted basis. That’s down 3.9 per cent from April 2022, but up $103,500 from January.

CREA pointed out again, however, that these gains are largely tied to the GTA and lower mainland B.C. markets. Stripping out the Greater Vancouver and Toronto areas from the equation brings the average price down $144,000, the association said.

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“An improving demand backdrop is helping boost home prices, even as affordability remains significantly strained,” Rishi Sondhi of TD Economics said in a note to clients.

“However, subdued supply is probably playing an even larger role in pushing prices higher.”

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How will Bank of Canada uncertainty impact the housing market?

CREA’s national housing data was released the same day as Canada Mortgage and Housing Corp. (CMHC) published housing starts figures that showed the annual pace of new construction in April rose 22 per cent compared with March.

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Housing starts are a measure of when construction on homes begins and a key indicator of how Canada is addressing housing supply gaps.

“The snapback in sales, the firming in prices, and the bounce in starts in April all suggest that the housing market has found a floor,” said Douglas Porter, chief economist with BMO Capital Markets, in a note Monday.

He felt more clarity around interest rates along with the underlying resiliency of the economy, which has seen persistent strength in jobs, played a role in April’s market.

“As we have often pointed out, if housing — the most interest-sensitive and cyclical sector of the economy — is showing a renewed pulse, it begs the question of whether monetary policy is nearly tight enough,” he said.

“While we don’t look for further rate hikes by the Bank of Canada, renewed strength in housing certainly aims the risks squarely in that direction.”

The Bank of Canada’s signalling has suggested rates might have to go higher to get inflation all the way back to its two per cent target.

Cathcart says that even if the central bank does return to rate hikes this year, he doesn’t see it derailing current trends in the housing market.

The threat of an additional hike doesn’t compare to the uncertainty of the past year, he argues, when rates rose 4.25 percentage points with little indication of when the peak of the cycle might arrive.

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“It makes no difference if they don’t do anything or they do one more,” Cathcart says.

— with files from Global News’ Kyle Benning, The Canadian Press

To learn more about how you can break into Canada’s housing market, check out Global News’ Home School series here.

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