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Canadian Real Estate Markets Show Signs of Improvement, but BMO Warns of Continued Price Declines

Faris Jamil - The Nation Post - Real Estate marketer & Analyzer
By: Faris Jamil

The Nation Post

The Canadian real estate market experienced a glimmer of hope in December, with rising home sales and a perception of market improvement. However, a closer look at the data reveals a more nuanced picture, as the Bank of Montreal (BMO) economists caution that these improvements may not be enough to halt the ongoing decline in home prices. In this blog post, we delve into the recent trends in the Canadian real estate market and the insights provided by BMO’s chief economist, Douglas Porter.

Mixed Signals in December
According to data from the Canadian Real Estate Association (CREA), December saw an 8.7% increase in seasonally adjusted home sales compared to the previous month. However, when looking at unadjusted sales, the increase was a more modest 3.7%. These figures, though indicating a short-term improvement, are still considerably weak, especially when considering the sluggish performance in the previous year.

A similar mixed picture emerges when examining inventory levels. Seasonally adjusted new listings dropped by 5.1% from November, suggesting a relative tightening of the market. However, unadjusted new listings were 5.8% higher than the same month the previous year, pointing to a looser market compared to last year.

BMO’s Cautionary Outlook
Despite the perceived improvement, BMO economists urge investors to exercise caution. Chief economist Douglas Porter notes that the mild re-tightening observed in the market in the last month is not sufficient to stabilize prices, at least not in the near term. Porter emphasizes the significance of the CREA MLS HPI Index, which fell by 0.8% in December, marking the fourth consecutive monthly decline. Prices have now decreased by 13% from the record high reached in February 2022.

Tempered Expectations for 2024
BMO highlights the tempered expectations outlined in CREA’s latest forecast, which align with the bank’s own projections. The official forecast anticipates flat sales volume in 2024, with the Home Price Index (HPI) expected to dip by another 4% on average, following a 5.9% drop in 2023. Porter adds a caveat, acknowledging that the sudden drop in long-term interest rates introduces potential upside risks to these projections.

Bank of Canada’s Hawkish Stance
Porter suggests that the Bank of Canada’s persistent hawkish narrative is driven by concerns that any sudden turn in the housing market could exacerbate existing inflation pressures. The central bank remains vigilant, emphasizing the potential impact of a revitalized housing market on inflation dynamics.

While the Canadian real estate market has shown signs of improvement in the short term, the cautionary notes from BMO’s chief economist serve as a reminder that challenges persist. The ongoing decline in home prices, coupled with the uncertainties in the market, emphasize the need for investors and stakeholders to monitor developments closely in the coming months.

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