2023 marked slowest year in Canadian home sales in 15 years, but ended with December “bounce”

Canadian existing home sales reached their lowest level in 15 years in 2023, although the year did end on a high note with a “bounce” in activity in December.

Total existing home sales for the year were down 11.1% compared to 2022, while listings were down 7.7% and average prices were 3.6% lower, according to data from the Canadian Real Estate Association (CREA).

However, activity trended upward in December, with sales up 8.7% compared to November and the average non-seasonally adjusted selling price up 5.1% year-over-year to $657,145.

“Was the December bounce in home sales the start of the expected recovery in Canadian housing markets?” wrote CREA’s senior economist Shaun Cathcart. “Probably not just yet.”

“It was more likely just some of the sellers and buyers that were holding onto unrealistic pricing expectations last fall finally coming together to get deals done before the end of the year,” he added. “We’re still forecasting a recovery in housing demand in 2024, but we’ll have to wait a few more months to get a sense of what that ultimately looks like.”

Regionally, 2023 sales fell the sharpest in the Atlantic region, specifically Nova Scotia (-17.2%), Newfoundland and Labrador (-15.2%) and New Brunswick (-13.5%). Sales in Prince Edward Island, however, were down just 5% year-over-year.

Ontario saw a 12.3% decline in sales, and Alberta, which had outperformed most of the country throughout much of the year, saw a 9% decrease in sales.

“Still, the national market ended the year in balanced territory,” noted Farah Omran of Scotiabank Economics.

In terms of prices, the MLS Home Price Index (HPI), which adjusts for seasonality, ended the year 7% lower compared to 2022. However, that was still 6.5% above 2021 prices, which were 22.5% above 2020 levels, Omran added.

New listings continued to drop in December, falling another 5.1% following previous consecutive monthly declines. That contributed to the sales-to-new listings ratio rising to 57.8%, though it remains well below its 10-year average of 61%.

Months of inventory also tightened to 3.8 months in December, down from 4.2 months in November. CREA notes that the long-term average for this measure is five months.

Cautious outlook

Despite the uptick in activity in December, economists—and CREA itself—remain cautious that an upward trend in home sales is imminent just yet.

“It’s notable that even CREA seemed a bit cautious on the outlook, even with this weather-aided rebound in December sales,” wrote BMO chief economist Douglas Porter.

“One big plus for the market is the recent plunge in bond yields, which has carved the all-important five-year GoC by more than 110 basis points from the peak just three short months ago,” he added. “This rapid descent has translated into falling long-term mortgage rates, no doubt reviving sentiment. In addition, fiery population growth, still-decent employment gains, and rapidly rising rents are keeping important support squarely under demand.”

Similarly, RBC Economics economists Robert Hogue and Rachel Battaglia expect softness in the real estate market to continue through at least the first half of 2024.

“Our view is the Bank of Canada will pivot around mid-year and slash its policy rate by 100 basis points over the second half of this year, followed by further 100 basis points in 2025,” they wrote. “We see [home] prices firming up after activity has turned and demand-supply conditions have tightened sufficiently—possibly sometime in the third quarter.”