The overall Canadian MLS System reported a 1.9% increase in home sales from August to September 2024.

CREA’s Senior Economist, Shaun Cathcart, noted that while the market remains in a holding pattern, the pace of rate cuts is expected to be faster than previously thought. This could lead some potential buyers to hold off on purchases for now, potentially boosting the rebound expected in early 2025.

Key Points

• National home sales rose 1.9% month-over-month in September.
• Actual monthly activity was 6.9% higher than September 2023.
• The average price of a home sold in September was $669,630, up 2.1% from September 2023.
• CREA forecasts a 5.2% increase in property sales for 2024

By September 2024’s end, 185,427 properties were listed on Canadian MLS® Systems, up 16.8% from the previous year but still below the historical average of around 200,000 for this period.

The national aggregate home price rose a modest 1.6% year-over-year in Q3 2024, but decreased 1.1% compared to Q2.

CREA Chair James Mabey stated that the housing market is expected to remain in a holding pattern until next spring.

Despite some improvement, housing supply remains a significant issue. The number of properties listed for sale across Canada at the end of September was still below historical averages. Looking ahead, Royal LePage expects home prices to remain stable through Q4, with a potential pull-ahead of the spring market due to anticipated continued easing of lending rates.

Interest Rate Cuts and Mortgage Renewals

The Bank of Canada will likely cut interest rates by a full percentage point by the end of this year.

With inflation excluding shelter costs already slipping below the central bank’s target range and joblessness rising to a decade high, policymakers may opt to reduce policy by 50 basis points at each of their next two meetings, according to Stéfane Marion, chief economist and strategist at National Bank of Canada.

He said that’s because the central bank’s goal is now to bring the key policy rate — currently at 4.25% — to the so-called neutral rate, where it neither stimulates nor restricts economic growth.

“We all know that the neutral rate is closer to 3%. You have to get to 3% as quickly as possible,” Marion said Wednesday at the Bloomberg Canadian Finance Conference in New York. “How low we’re going to get below 3% remains to be seen but the first step is for the Bank of Canada to bring us to 3% now. We needed to be there yesterday.”

Subsequent to quarter end, the Bank of Canada cut interest rates by 50 basis points to an overnight rate of 3.75%. The bank’s following and final rate decision this year is on Dec. 11.

In September, the consumer price index eased to 1.6%, undershooting the 2% target for the first time in more than three years. But taking out shelter costs, the rate fell to 0.4% last month, which is even lower than the central bank’s target range of 1%-3%.

Impact of Immigration on the Canadian Economy

The country’s record population surge is one of the key reasons behind elevated shelter inflation as arrivals of new residents exacerbated housing shortages. Since 2022, the country has added more than three million people.

Immigration also led to rapid labor force growth, which has been eclipsing monthly job gains over the past year.

Despite its short-term challenges, Canada is well-positioned for future growth, Marion said. The country’s cheap and abundant electricity could support demand from the artificial intelligence sector and its grid is already one of the world’s cleanest.

It also has a fiscal advantage because its pensions are better funded than many countries, which means the government likely won’t surprise corporations with special taxes to make up for any unexpected shortfalls, he said.

Commercial Market Review and Outlook

Persistently low vacancy in the GTHA are reshaping the industrial real estate market.  Q3 2024 stood out as one of the stronger quarters in the past year, with vacancy rates edging up by just 10 bps quarter-over-quarter (QOQ) to 3.8%— the smallest quarterly increase since the end of 2022. Sublease activity slowed as well, with an additional 62,000 square feet (sf) of available space, marking the lowest quarterly increase since mid-2023. A significant factor behind the vacancy uptick were spaces under 50,000 sf, with 133 new listings making up 38.5% of total new availability.

The rapid rent growth of 2021 and 2022, where the annual growth rate peaked at 49.3%, has gradually transitioned to a downward trend. In the past quarter, the average net asking rent fell by 2.4%, decreasing from $18.07 per square foot (psf) to $17.64 psf. This marked the second decline of the year pushing the year-over-year (YOY) change to -3.7%, a trend not recorded in over 14 years. Most of the downward pressure came from older buildings, primarily those constructed before 1990, while reductions in new properties built after 2000 were rare, with only three recorded instances.

With respect to the Office real estate market, employment tends to be the biggest driver of fundamentals. Employment in Ontario rose by 0.5% in September, led by gains in full-time positions. This continues an upward trend that started at the end of 2023, with cumulative job growth reaching 198,000 (+2.5%). The unemployment rate fell by 0.2% to 6.9% in September, though it’s still up 0.9% compared to the same time last year. Ontario’s economic growth is expected to slow more than any other province this year, influenced by weaker U.S. growth and sluggish domestic consumption and investment. GDP is projected to grow by 0.7%, marginally above the June estimate of 0.5%.

The Greater Toronto Area (GTA) office market is transitioning into a new phase in this cycle, and 2024 is poised to be a distinctly different year. Although downtown vacancy rates remained near record highs, quarterly trends indicate a more stable market as the extreme volatility of the past four years gradually eases. This past quarter, vacancy inched up marginally by 10 basis points (bps) to 17.2%, maintaining the 17% range for a third consecutive quarter. The average quarterly uptick this year was 40 bps, significantly lower than the larger jumps of 70 bps in 2023 and 100 bps in 2022.

The suburban office market is achieving stability earlier. This quarter, suburban vacancy in the GTA held steady at 16.7%, while downtown continued to post increases. Suburban vacancy has averaged a decrease of 10 bps this year, marking the third consecutive quarter it has been lower than downtown’s—a streak not seen in over two decades. The GTA West market has significantly influenced suburban performance, with vacancy steadily declining since the end of 2022, reaching a four-year low of 15.6%.

Greater Toronto Area (GTA) Apartment and Condo Rental Market

The rental market continues to show overall strength but has begun to slow year over year. Asking rents for all residential property types in Canada during September increased 2.1% from a year ago to an average of $2,193, representing the smallest year-over-year increase since October 2021.

The annual rate of rent growth in Canada moderated for the fifth consecutive month, slowing substantially since May when rents were rising by more than 9% per year. However, average asking rents were 13.4% higher than two years earlier and 25.2% higher than three years earlier during COVID-19.

The deceleration in rents coincides with a significant cutback in net inflows of non-permanent residents.

Average rents in Toronto are currently at $2,402 for 1-bedroom units and $3,133 for 2 bedroom units. Asking rents for condominium apartments in September were down 8.2% year over year. Condo rents in Toronto were $2,745 on average in September 2024, down 7% year over year. Condo rents were down compared to a year ago across all unit types except for three-bedroom units, with studio units recording the largest decline.

Across all of Ontario, asking rents for purpose-built and condominium apartment rents declined 4.3% to an average of $2,380.

Over the past year, shared accommodations have gained popularity among both renters and landlords, evidenced by a 48.7% year-over-year rise in the number of listings. The types of properties being listed vary significantly, with distinct trends emerging in specific markets.

The GTA has experienced a notable increase in condo units where owners are subletting spare bedrooms. Suburban communities across Ontario have experienced a growing number of basement units being offered for rent. In several cities, this phenomenon was characterized by the subdivision of basement units into smaller studio apartments. Within the 905 region of the GTA and outlying suburban communities, there has been an increase in single-family homeowners renting out individual bedrooms within occupied homes, likely as a means to offset rising mortgage payments and as a result of the record population growth experienced in the province in the last several years.