The Canadian real estate market is looking to move on from last year’s correction that saw sales activity, and prices slide from their pandemic-era highs. But conditions are still relatively tight, with demand outpacing supply, although conditions could be improving.

According to the Canadian Real Estate Association (CREA), the number of new residential property listings climbed nearly six per cent month-over-month in June. This was in addition to the 7.6 per cent jump in May and the more than three per cent boost in April. Moreover, the number of months of inventory – a gauge that measures the number of months it would take to exhaust current inventories at the present rate of sales activity – was unchanged at 3.1 months. This was below the long-term average of about five months for this time of the year.

“The good news is that supply is continuing to rise. We estimate that more homes became available for sale in every major market last month. That came on the heels for sizeable broad-based increases in May. So far the growing supply hasn’t done much to ease (recently re-emerged) upward price pressure. But if sustained, we would expect the pace of property appreciation to slow in the coming months,” RBC Economics, led by assistant chief economist Robert Hogue, wrote in a July research note.

Overall, new residential listings are no longer at a two-decade low as they were in March. At the same time, they are still below the average heading into the typically busy summer buying season.

So, why are fewer properties being listed right now compared to previous years? Industry experts say there could be various reasons to explain why homeowners are not listing their homes today.

Let’s take a deeper dive into the typical causes.

Supply & Demand: Why Fewer Properties Are Being Listed Right Now

Here are five reasons why fewer homes are being listed in the Canadian real estate market today:

#1 Sellers Are Being Patient

Because of the supply and demand imbalances across many Canadian real estate markets, homeowners might be less inclined to list their properties. Put simply; they are waiting for prices to increase and allow for more competition to fuel valuation growth. If they believe prices will climb ten per cent over the next year, why not wait?

#2 Where Will They Move?

Here is the problem many homeowners face: If they are selling their home, and supply is scarce in a market of their choosing, where will they go? Typically, homeowners would sell their starter home and relocate to a suburban or rural area to acquire a larger home for a fraction of the price. However, downsizing or upsizing in today’s conditions is more challenging.

#3 Interest Rates

If anybody purchased a residential property before the Bank of Canada (BoC) started raising interest rates in 2022, they are enjoying a low mortgage rate since they were much lower than today’s. Existing owners might see their current mortgage rate and think they should stay put since they would likely pay a much higher one if they sold and moved elsewhere.

#4 For Rent

In 2022, the Greater Toronto Area witnessed a trend: a significant increase in the share of homes (houses and condominiums) that were rented after not selling. While this had been a regular component of the Toronto real estate market in previous years, it skyrocketed last year and was well above pre-pandemic times. Once again, this ties into the previous point of homeowners choosing to be patient, riding out the market and waiting for higher prices.

#5 Demand Will Only Intensify

Homeowners understand that demand will only increase due to various public policy pursuits at the federal level. The first significant development coming out of Ottawa was the recent launch of the First-Time Homebuyers Savings Account program that complements the Home Buyers Plan (HBPP). The second significant trend is that the federal government will welcome more than one million immigrants over the next couple of years, contributing to rising demand.

What’s Next for the Canadian Real Estate Market?

A recent Reuters poll discovered that housing analysts anticipate average home prices in the Canadian real estate market to climb heading into 2024 as interest rates are expected to peak, and demand for housing remains strong.

The survey projected that average home prices were expected to increase by two per cent in 2024 and four per cent in 2025.

“Spring 2023 increasingly looks like the turnaround point for Canada’s housing market after a year-long slump. And perhaps more importantly, demand-supply conditions suddenly appear tight,” said Hogue. “Resurging demand and low inventories have put sellers back in the driver’s seat in most major markets…It appears buyers are quickly regaining confidence in both markets now that the Bank of Canada has paused its aggressive rate hike campaign.”

In June, the national average home price jumped nearly seven per cent year-over-year to $709,218.