Canada’s housing market appears to be finding its footing. While the recovery remains modest, recent data suggest that the market may be moving beyond the worst of its current cycle.
Home Resales Continue to Edge Higher
The budding recovery in Canada’s housing market remains on track, with July marking the fourth consecutive monthly increase in home resales. Activity edged up 0.5% from June, extending a gradual upward trend.
Four consecutive monthly gains are encouraging, particularly after a prolonged period of weaker activity. However, it is important to keep the improvement in perspective: the market is recovering from relatively soft levels, rather than returning to a boom.
Have Home Prices Found Their Bottom?
There are also signs that home values may have already reached their cyclical low.
The national aggregate MLS Home Price Index increased for the second consecutive month, suggesting that the period of declining prices may be coming to an end.
For buyers and sellers alike, this is an important development. A stabilizing price environment can help restore confidence, particularly among homeowners who have been waiting for greater certainty before making a move.
Supply and Demand Are Becoming Better Balanced
Another positive development is the improving balance between supply and demand.
The market is no longer characterized by the same degree of imbalance seen during some of the more extreme periods of the housing cycle. More balanced conditions can provide buyers with greater choice while also giving sellers a more stable environment in which to market their properties.
For real estate professionals and appraisers, this balance is particularly important. Market conditions, inventory levels and the relationship between supply and demand all play a role in understanding current market value and interpreting comparable sales.
The Recovery Is Encouraging — But Still Modest
Despite the recent improvements, Canada’s housing market remains soft overall.
In fact, at the pace of improvement seen over the last two months, it would take approximately two and a half years for activity to return to its average level.
That statistic puts the current recovery into perspective. The direction is positive, but there is still considerable ground to cover.
Confidence Could Be the Catalyst
The encouraging news is that there may be room for the turnaround to accelerate as confidence returns.
Housing markets are heavily influenced by consumer confidence. When buyers and sellers become more comfortable with interest rates, prices and the broader economic outlook, activity can build relatively quickly.
For now, the Canadian housing market appears to be taking a slow-and-steady approach. Four consecutive months of rising resales, two months of improving national home prices and better-balanced supply and demand all point in the right direction.
What Does This Mean for Appraisals?
For property owners, buyers and lenders, the key takeaway is that market conditions are changing.
An appraisal is not simply a reflection of yesterday’s market. Current market trends, recent comparable sales, inventory, buyer behaviour and the direction of prices all need to be considered when determining market value.
As Canada’s housing market continues to stabilize, keeping a close eye on these indicators will be essential.
Slowly but surely, the housing market appears to be turning a corner. The recovery may still have a long way to go, but the latest numbers provide some reason for cautious optimism.