Real estate unit sales have hit bottom, RBC report finds — but we likely won’t see a recovery until 2024

But prices are still in free fall, with average national prices tumbling another 1.1 per cent in February from January, marking the twelfth 12th straight monthly decline. Because of the sharp drop in new listings, further tightening of demand-supply conditions could signal home prices bottoming out sometime in the summer or shortly after, the report said.

“Activity is so low that there’s not much further for it to fall, especially in Ontario and the GTA where sales activity over the last few months has remained level, indicating there’s a floor there,” said Robert Hogue, senior economist with RBC and report author. “Sales activity might pick up a bit in the spring months and it will take a little longer for prices to catch up.”

Unit sales rose in all major markets, including Toronto, which was up 8.5 per cent month over month. Vancouver was up 15.2 per cent, Montreal up 3.7 per cent, Ottawa up 2.1 per cent and Calgary up 2.4 per cent.

Still, activity remains generally depressed, at decades low levels in some cases — Toronto’s home resales were down 47 per cent in February 2023 compared to the same time last year.

In addition, price trends were largely unchanged in February as the correction has been strongest in Ontario and British Columbia. Toronto’s prices are down 18 per cent since the February 2022 peak.

“Once we reach the bottoming out of prices we won’t snapback in activity and there won’t be a sharp drive in prices,” Hogue said. “Affordability is still a big issue and it will keep the market from rebounding in short order.”

While home prices are down they still remain above pre-pandemic levels and mortgage rates are sitting around five to six per cent from their historic lows of 1.5 per cent in early 2022.

RBC forecasts that the Bank of Canada will likely begin dropping the overnight lending rate in 2024 impacting mortgage rates.

“We may see more people entering the market as interest rates fall over 2024,” he added.

Philip Cross, a senior fellow at the Macdonald-Laurier Institute and former chief economist at Statistics Canada, has a more dire forecast for the country’s housing market and believes the road to recovery won’t be easy.

“The idea that after all of the distortions and the massive increase in housing we saw (during the pandemic) that we’ll have this quick soft landing and be able to turn right around and see prices increasing again, I find unbelievable,” he said.

High interest rates have eroded affordability and the economy is still in a state of flux, he said. While the housing market has gone through a “nice correction” it still hasn’t been impacted by potential job loss and economic turmoil, which could be hitting the world economy following the recent string of bank collapses, Cross said.

“A lot depends on the course the economy takes,” he said. “Right now employment is strong, but we’ll really start to see a long-term impact on the housing market once people start to lose their jobs and default on their mortgage or have to put their house up for sale in distress.”

There have been reports from mortgage brokers of more forced sales in Toronto, but Hogue said on aggregate, there isn’t a wave of distressed sellers putting their homes up for sale just yet.

“Household debt continues to be a tremendous stress, and we’ll continue to monitor the situation closely,” Hogue said. “It doesn’t mean forced sales won’t happen. It takes months to see the full effect of interest rate hikes.”