In early 2022, as prices reached record highs and interest rates began to rise, home resales across Canada launched into a steep slide that brought activity to its lowest levels since mid-2020. Over the last few months, though, the rate of decline has eased significantly.

New statistics from The Canadian Real Estate Association show that national home sales rose 2.3% month over month in February. Although still 40% below February 2022 levels, it marks the largest monthly increase since the housing market correction began last year, and the third uptick over the last five months.

Robert Hogue, Assistant Chief Economist at RBC, believes the data points to “a nearby bottom in many local markets.”

“It increasingly looks like Canada’s housing market is finally finding its footing — at least from a transaction volume perspective,” Hogue wrote in a monthly housing market update.

Randall Bartlett, Senior Director of Canadian Economics at Desjardins, echoed Hogue’s sentiment in an economic update, predicting that sales activity will find a bottom in the middle part of this year. A number of economists at TD, including Beata Caranci and Derek Burleton, expect the bottom to be driven by Ontario and British Columbia, as activity begins to rebound in both markets.

Although resales did rise in all major markets last month, including a 15.2% jump in Vancouver and an 8.7% increase in Toronto, activity remains “generally depressed,” and, excluding lockdown periods, is at decades-low levels in some cities.

With the national composite MLS Home Price Index down another 1.1% between January and February — a slight ease from the 1.5% average dip seen over the last six months, but still marking the 12th consecutive month of decline — the consensus across the aforementioned institutions is that Canada’s price correction will persist for a few more months.

Provided that the Bank of Canada has ceased its campaign of interest rate hikes, prices should bottom sometime this summer or shortly thereafter, RBC’s Hogue predicts, with the exact timing varying by market. To date, Ontario and BC have born the brunt of the correction, with the MLS HPI down 19% and 13% in the provinces, respectively, from the 2022 peak.

Despite additional anticipated declines, Scotiabank economist Farah Omran believes prices will remain above pre-pandemic levels, and affordability will continue to be a “widespread” issue across Canada’s housing market.

“The declines in prices we have seen so far have done little to alleviate unaffordability concerns, as any relief from price declines has been offset by higher mortgage rates,” Omran wrote in a housing market update.

“Pent-up demand from both the erosion of affordability up to this point and strong population growth is expected to take hold once borrowing rates decline, pointing to a stabilization in housing market activity and an eventual uptick in demand and prices. This, if not accompanied with sustained improvements on the supply front, will lead to a deterioration in affordability.”

Housing starts increased 13% month over month in February to over 243K units. Multi-unit urban starts led the upswing, rising 18%, while single-detached urban starts rose 8%.

As Desjardins’ Bartlett notes, with starts focused on the more “volatile” of segments, it’s too early to know if residential construction has reached a turning point: “February’s fillip could be March’s flop.”

Storeys(March 16, 2023, Zoe Demarco)