Canadian home sales dropped 5.3 per cent in July, marking the fifth consecutive month-over-month decline in sales volumes, as higher interest rates continued to cool demand, new statistics from the Canadian Real Estate Association showed.
July’s percentage decline, however, was the lowest of the five months. The average sale price, unadjusted for seasonality, was $629,971, a five-per-cent decline from the same month in 2021, the association said. Prices have now fallen for four straight months.
CREA has attributed much of the market’s moderation to the increased cost of carrying a mortgage after Canada’s key interest rate was increased by one percentage point in mid-July, the largest hike the country has seen in 24 years.
Higher borrowing costs are causing people to rethink their housing intentions, triggering what the Bank of Canada in July called a “sharp slowdown” in the housing market. Prospective buyers are holding out for further drops that some anticipate could materialize in the fall, while sellers are debating whether they should try to get what they can from their home now, or wait for the market to turn in their favour, Jill Oudil, chair of CREA, said in a press release.
“The demand that was so strong just a few months ago has not gone away, but some buyers will likely stay on the sidelines until they see what happens with borrowing costs and prices. As they re-enter the market, they’ll find a bit more selection, but not as much as might be expected,” Oudil said.
(Buyers will) find a bit more selection, but not as much as might be expected
JILL OUDIL
Oudil’s observations mirror what real-estate agents have reported for months: the market is cooling.
In typically heated markets such as the Greater Toronto and Greater Vancouver Areas, they have noticed homes sitting for sale for longer than they would have last year or at the start of the year.
Buyers are now waiting on the sidelines to see just how much purchasing power they could lose as rates climb but have also put off making offers because forecasts have led them to believe prices will drop even further.
“One new piece of the puzzle was the decline in new listings in July. It was of the same magnitude as the decline in sales, and in many of the same parts of the country,” Shaun Cathcart, CREA’s senior economist, said in the release.
“It’s only one month of data at this point, but it suggests that some sellers are also playing the waiting game, and that is with an overall inventory of homes for sale that is still historically low.”
Although overall inventory is at a “historical low,” said Cathcart, there were 3.4 months of inventory on a national basis at the end of July 2022, which is quite a bit above the all-time low of 1.7 months set at the beginning of 2022.
Most of July’s declines came from markets across Ontario and, to some degree, in British Columbia. Prices in the Prairies were “more or less flat.”
In the meantime, Quebec is showing small dips. On the East Coast, prices were on the rise. Halifax-Dartmouth prices have, however, stalled.
“We’re going to have pretty depressed sales activity,” said Robert Kavcic, an economist at Bank of Montreal. “We’re going to have a gradual increase in inventory out there on the market, and with this, combined with higher interest rates … all of that combined is going to just continue to pull prices down for the rest of this year.”
We’re going to have pretty depressed sales activity
ROBERT KAVCIC
There is one component of the market, though, that has also been noticeably absent, and that is investors. They represent about a quarter of market in Ontario, for example, and appear to have backed off because of falling prices, Kavcic said. “A market that was priced for 1.5 per cent mortgage rates last year is now operating on four or five per cent mortgage rates,” he said. “Arithmetically, it just simply doesn’t work,” he continued. “That discovery process of where the new price level needs to be is what’s going on right now as well too.”
Historically in Canada, corrections in home prices have taken two to three years to find a bottom. That is consistent with current housing market reports, where a wave of interest-rate hikes will likely last throughout 2022. Market experts anticipate rate increases up until the end of this year, and the market might take some time to adjust.
“Consumers are error-sensitive to interest rates, of course, but most fixed-rate mortgages have already priced in the Bank of Canada’s anticipated interest-rate increases for this year, so it looks like we’re moderating in terms of the softness, and now we’re heading to that soft landing that we thought we’d be seeing,” Karen Yolevski, COO of Royal LePage Real Estate Services Ltd., said in response to the CREA report.
