Canadian real estate sales are returning to normal, but prices suffered another setback last month. Canadian Real Estate Association (CREA) data shows the price of a composite benchmark, or typical, home, fell in December. Despite demand returning and an ambitious start to 2024, the year closed out with losses doubling the rate seen a month prior. Optimism over growing prices is fading as the market’s fundamentals shift, and more uncertainty begins to appear in major markets.
Canadian Real Estate Prices Slipped Last Month, Largely Moved Sideways Since 2021
The price of a typical home across Canada, a.k.a. the CREA composite benchmark.
Source: CREA; Better Dwelling.
Canadian real estate prices slipped in December despite a substantial bump in home sales. The benchmark price fell 0.2% (-$1,500) to $705,600 in December, double the decline observed in November. That rolls the benchmark back to where it was two years ago, which happens to be roughly the same price as back in August 2021. Moving sideways is a theme these days.
Despite the accelerated decline in December, prices have barely budged over the past year. Prices are also down just 0.2% (-$1,500) from last year, the highest annual growth since last March. Monthly declines have accelerated but annual changes are almost flat. Are things doing better or worse?
Like all things, the reality is somewhere in the middle of the two numbers. The 12-month trend can be impacted by a base effect that fails to reflect sentiment shifts that occur within the period. To eliminate the noise, analysts (like those at the BoC) will often annualize 3-months of data to see how more recent growth contrasts.
Canadian Real Estate Price Growth Saw Enthusiasm Fade In 2nd Half
The 12-month and 3-month (annualized) rate of growth for the price of a typical home across Canada.
Source: CREA; Better Dwelling;
The annualized 3-month trend reveals price uncertainty. Growth peaked at a lower level than previous years—the smallest peak since 2019. At the same time the trough (lowest growth) has become more shallow over the past two years. However, this trendline appears to be losing a little more steam than the historical norm. Until the 3-month growth rate crosses over the 12-month, the takeaway is more downside pressure than upside.
An erosion in recent months can also be blatantly seen when measured from the record high. December’s monthly drop pushed prices 17.2% (-$146,400) lower than the peak. Not a dramatic free fall, but certainly not the positive market many assume with all of the headlines about soaring sales. The growth in sales is largely just normalization to historically healthy levels after falling to near-record lows over the past few years.
The reason for the sudden shift in sentiment from the top of the year is likely due to interest rates and immigration. Anticipating rate cuts helped spark demand from a demographic of panicked buyers looking to get in before a demand surge. However, those rate cuts have failed to materialize into lower mortgage rates to actually spark demand—fixed rate mortgages remained largely unchanged, and most experts don’t see much downward pressure in the near future.
The picture of immigration also changed. Canada was “running out of land,” a fear that has cyclically popped up shortly after rates fall to the low of the business cycle—a trend that goes back to the 1930s. In October, the Government of Canada (GoC) announced it would start to intentionally shrink the population and curb immigration following record growth. It’s slowly being revealed that the announcement was more likely fading appeal as the taper was in line with falling immigration, but in any case it’s now confirmed to the average person that the fundamental dynamics of the market will be changing soon. Whether that’s enough to offset the Government of Canada (GoC) mortgage market “tinkering” to raise prices, remains to be seen.