The Supply-Demand Balance in Real Estate
Real estate prices are fundamentally determined by the balance between available housing supply and potential buyer demand. This structural imbalance is at the heart of the affordability crisis affecting Canada and Quebec for several years. For mortgage brokers, understanding supply-demand dynamics is essential for anticipating price trends, advising clients on optimal purchase timing, and adapting financing strategies to local market conditions.
Housing Supply Factors
- Housing starts: the number of new residential construction projects begun, published monthly by CMHC. Starts break down into single-family, condominiums, and rental buildings. In Quebec, starts declined significantly in 2023-2024 due to high construction costs and interest rates.
- Active resale listings: the number of properties for sale at any given time. Centris data in Quebec shows gradual listing increases since late 2022.
- Use conversions: transformation of commercial or industrial buildings into residences, a growing trend in downtowns since the pandemic and increased remote work.
- Municipal regulation: zoning rules, permit timelines, and environmental requirements directly affect construction pace. In Quebec, approval processes are often considered lengthy and complex.
- Construction costs: materials (lumber, steel, concrete), skilled labour, and land prices déterminé project economic viability. Costs have increased 30 to 50% since 2020 in Quebec.
Housing Demand Factors
- Population growth and immigration: Canada welcomes over 400,000 permanent residents annually, plus temporary residents (students, workers). Quebec receives approximately 20% of Canadian immigration, concentrated in the Montreal CMA.
- Interest rates: low rates stimulate demand by increasing household borrowing capacity. The 2020-2022 period (policy rate at 0.25%) triggered a demand explosion.
- Employment and income: a vigorous job market with rising wages increases the number of potential buyers and their budgets.
- New household formation: young adults leaving family homes, separations, and immigration create new households requiring housing.
- Consumer confidence: a positive economic climate encourages purchase decisions, while uncertainty delays them.
The Listings-to-Sales Ratio: The Key Balance Indicator
The listings-to-sales ratio is the most reliable indicator for determining whether a market favours buyers or sellers. It is calculated by dividing active listings by the number of sales completed in a given month. Below 15% indicates a seller's market where demand far exceeds supply, creating upward price pressure and bidding wars. Between 15 and 20% signals a balanced market with reasonable negotiation. Above 20% indicates a buyer's market where supply exceeds demand, giving buyers increased negotiating power. In Quebec, the market was firmly in seller's territory from 2020 to 2022, with ratios sometimes below 10% in certain regions. Since 2023, the market has moved toward better balance in most areas.
The Structural Shortage Challenge in Quebec
Quebec's housing shortage results from a set of structural factors that cannot be quickly resolved. Sustained immigration creates constant demand, while construction is hampered by high costs, skilled labour scarcity, and lengthy regulatory processes. Quebec municipalities face densification challenges: local resistance to densification projects, environmental constraints, and infrastructure limitations (sewers, transportation) slow development. The Quebec government and municipalities have announced various measures to accelerate construction, but results will take several years to materialize.
Practical Implications for Mortgage Brokers
Understanding local supply-demand dynamics enables brokers to better serve their clients. In a seller's market, ensure pre-approvals are solid and current, rates are locked, and clients are ready to act quickly. In a buyer's market, negotiating conditions improve: recommend offers conditional on inspection and financing, and negotiate seller concessions. Regular monitoring of CMHC and APCIQ data allows brokers to proactively inform clients about market trends and position themselves as strategic advisors.