Canada is witnessing "early signs" of a housing market recovery, and Toronto may see prices drop to their lowest levels this spring, according to a recent report by the Royal Bank of Canada (RBC).

In the report, which was released last week, RBC said that January was the second consecutive month in which residential transactions increased in major markets across the country.

The report, written by economist Robert Hogue, stated: "... This indicates that the contraction that began in spring 2022 may have come to an end."
Adding, "The drop in fixed-rate mortgage interest rates since November has opened the door for buyers, and increasing expectations that the next move by the Bank of Canada will be a rate cut have temporarily boosted (low) confidence.

Hogue went on to note that a more "robust" and "sustainable" recovery is not expected until interest rates fall further, likely in the second half of 2024. The report indicates that Canada has not yet seen any early signs of a "rise" in the number of sellers due to high borrowing costs.

"If anything, new listings have been on the weak side, tightening supply and demand conditions.

The report stated there is a risk that mortgage renewal payment shocks could lead to a wave of distressed sales.

While prices have fallen in most major markets in Canada, Calgary bucked this trend as prices maintained an "upward trajectory."

RBC expects prices to decline by one percent nationwide in 2024, with a 2.2 percent increase in Alberta and a 2 percent decrease in Ontario.

According to Hogue, the housing market may be turning a corner in the Toronto area.

Explaining that "the recent drop in fixed mortgage interest rates may be what some buyers were waiting for to make a deal, or the unusually mild weather has put them in a spring-like optimistic mood.

The report quickly pointed out that "the extended affordability conditions" are likely to keep buyers out of the market until interest rates or property values or both "decline more meaningfully."

The report continued: "Currently, prices continue to fall, with the average home sale price in Toronto across all property types peaking at $1,334,062 USD in February 2022 before dropping to a low of $1,037,542 USD later that year, according to data from the Toronto Regional Real Estate Board (TRREB).

Since then, prices have remained largely steady except for a wave of activity last spring.

The report noted that Toronto experienced six consecutive monthly price declines since July, with a total drop of $84,000, or 7.2 percent.

The report stated: "This trend may not last much longer if the recent tightening in supply and demand conditions continues."

Adding, "We expect prices to reach their lowest levels this spring, then gradually recover during the second half of 2024."