Canadian home sales saw minimal change in November, with a national decrease of 0.6% from October. Gains in the western provinces offset declines in regions like Nova Scotia (-13.0%) and Ontario (-1.5%).
Sales activity continued to remain below historical norms despite a 0.9% increase in October. Transactions fell in seven of the ten provinces, though improvements were noted in British Columbia (+2.6%), Alberta (+2.7%), and Saskatchewan (+3.4%).
Real Estate Transactions Remain Stable
The number of real estate transactions has been stable since July, unaffected by the Bank of Canada’s rate cuts. Sales are still 7.6% below their peak in November 2024 due to lingering trade uncertainties.
Optimism persists for the residential market, as expected policy rate cuts and a stronger labour market could drive future demand. Economists foresee these factors as potential boosts in forthcoming months.
The stable housing market shows the Bank of Canada’s fall rate cuts are taking time to work through the economy. We saw the Bank cut its policy rate by 25 basis points in both September and October to 3.75%, yet transactions remain historically low. This suggests traders should anticipate the Bank holding rates steady in early 2026, which would keep short-term bond yields in a tight range.
Opportunities and Risks
We believe the optimistic outlook for the coming months, supported by a strengthening job market, points to potential upside for the Canadian dollar. The latest Labour Force Survey released on December 5th showed the economy added a solid 45,000 jobs, pushing the unemployment rate down to 5.6%. This could fuel the housing rebound policymakers are hoping for, making call options on CAD against USD an interesting play for the first quarter.
The divergence between a weak eastern housing market and a strong western one presents specific equity opportunities. Traders might consider Canadian bank stocks, which benefit from increased mortgage activity, especially those with heavy exposure to British Columbia and Alberta. Real estate investment trusts (REITs) focused on residential properties in those western provinces could also see renewed buying interest.
Despite the optimism, significant risks remain, especially with ongoing uncertainty surrounding the 2026 CUSMA trade agreement review. We remember how quickly the market turned during the aggressive rate-hiking cycle of 2022 and 2023, so hedging against downside risk is prudent. Buying put options on Canadian real estate ETFs could offer protection against any unexpected negative economic shifts.
A potential housing rebound could also complicate the inflation picture for the Bank of Canada. While the latest CPI reading for November came in at 2.9%, a surge in home prices could push inflation higher again. This may force the Bank to signal a more hawkish stance later in 2026, which is not yet fully priced into interest rate swaps.
