RBC & CMHC Have Just Confirmed My 2025 Forecast!

Summary

The Canadian real estate market in October 2024 saw a 7.7% increase in home sales, marking the highest level since April 2022. Despite this, prices are still lower than the peak in 2022, and the sales-to-new-listings ratio has declined, signaling a cooling market. Mortgage payments remain high at $3,240, compared to an average rent of $2,152. Reports from CMHC and RBC suggest increasing risks of mortgage arrears, particularly in major cities like Toronto and Vancouver, due to rising unemployment and higher debt levels. While short-term market resilience is noted, forecasts point to challenges in the near future for homebuyers and homeowners alike.

Takeaways

• 😀 Canadian home sales saw a surprise 7.7% month-over-month increase in October 2024, reaching their highest level since April 2022, but it's still an average month overall compared to past years.
• 😀 October 2024 home sales were better than 2022 and 2023, but not as high as 2020 and 2021, signaling moderate market activity.
• 😀 The months of supply (inventory) decreased to 3.7 months in October, down from 4.1 months, suggesting tighter supply and higher competition among buyers.
• 😀 The average Canadian home price increased by 3.9% month-over-month in October 2024, now sitting at $696,000, but still down 14.6% from the February 2022 peak.
• 😀 The sales-to-new-listings ratio for October 2024 was 58%, the same as in January, but lower than the peaks of recent years, indicating a more balanced or less competitive market.
• 😀 Rent prices are declining, with the average rent for a Canadian home now $2,152, compared to the average mortgage payment of $3,240—almost a $1,100 difference.
• 😀 CMHC reports that Toronto and Vancouver are at higher risk of mortgage arrears (delinquencies), with Toronto potentially facing mortgage arrears rates not seen since 2012.
• 😀 Rising non-mortgage debt, like credit cards and auto loans, is an early indicator of future mortgage arrears, as homeowners prioritize mortgage payments over other debts.
• 😀 Economic uncertainty, especially higher mortgage rates and a weakening job market, are forecasted to increase financial pressure on homeowners, particularly when renewing mortgages over the next 24 months.
• 😀 RBC forecasts unemployment to rise to 7% by early 2025, which could exacerbate economic challenges and put additional strain on household finances and the housing market.
• 😀 Both CMHC and RBC indicate that mortgage arrears are likely to increase in 2025, with rising unemployment and economic pressures being significant contributing factors.

Q & A

What was the change in Canadian home sales in October 2024?

Canadian home sales increased by 7.7% month-over-month in October 2024, reaching their highest level since April 2022.

How does October 2024's sales activity compare to previous years?

October 2024 saw an average sales activity compared to previous years, falling in line with long-term trends. It was better than 2022 and 2023, but not as high as in 2020 and 2021.

What is the current months of supply in the Canadian housing market, and what does it indicate?

The months of supply dropped to 3.7 in October 2024, down from 4.1 in previous months. This indicates that inventory levels have been absorbed by the high number of sales, signaling a tighter market.

How does the sales-to-new-listings ratio relate to market conditions?

The sales-to-new-listings ratio for October 2024 was 58%, which is lower than in previous years. This ratio helps track the balance between supply and demand, and a declining ratio suggests a cooler market, with fewer buyers relative to listings.

What impact did the decrease in months of supply have on home prices?

As the months of supply decreased to 3.7, home prices increased, reflecting the basic economic principle of supply and demand—lower supply pushes prices higher.

What is the average home price in Canada as of October 2024, and how does it compare to earlier in the year?

The average home price in Canada for October 2024 was $696,000, which marked a 3.9% increase from the previous month. However, this price is still lower than the February 2022 peak of $815,000.

What do the CMHC and RBC reports predict for the Canadian housing market in 2025?

Both CMHC and RBC predict a rise in mortgage arrears, particularly in major cities like Toronto and Vancouver, and an increase in unemployment rates by 2025, which could further affect the housing market and broader economy.

What is the expected trend for mortgage arrears in major Canadian cities?

Mortgage arrears are expected to rise sharply in Toronto, possibly reaching levels not seen since 2012, while Vancouver is expected to see a rise similar to its 2015 levels. Other cities like Calgary, Saskatoon, and Halifax are expected to remain more stable.

How does the CMHC report explain the correlation between mortgage arrears and housing market health?

The CMHC report explains that when sales activity slows, homeowners struggling with their mortgages have fewer options to sell and avoid arrears, making the health of the resale housing market a critical indicator for mortgage arrears.

What role does the labor market play in Canada's economic forecast according to RBC?

RBC emphasizes that the labor market is a major risk to the Canadian economy. They predict that unemployment will rise to 7% by early 2025, which could reduce household disposable income and further strain the economy.

What are the main challenges Canadians may face when renewing their mortgages in the next few years?

Canadians may face significant financial pressures due to higher interest rates and increasing unemployment. This combination is expected to make mortgage renewals difficult, particularly for those with already tight budgets.