Canadian housing markets will continue to cool because of the Bank of Canada’s assault on inflation that began with an overnight rate increase in March and five subsequent increases, taking the rate from .25% to 3.75%..“Unsurprisingly, soaring interest rates are keeping the temperature significantly down for Canada’s housing markets this fall,” says Robert Hogue, an economist with RBC..“Activity remains well below pre-pandemic levels in most markets and prices are softening further from peaks reached earlier this year.”.While most markets performed in tandem during the pandemic, experiencing soaring sales and prices, there has been a shift, says Hogue..“There were some interesting nuances emerging from the latest local real estate board reports. The slide in activity may be stabilizing in Toronto and perhaps Calgary and Edmonton whereas it was still full-on in Montreal and Ottawa to a lesser extent as of October,” he says. .“We’re not convinced a sales uptick last month in Vancouver marked a turning point, but it could signal a slowing in the pace of correction.”.“Declining price trends appear to be broadly moderating with all major markets reporting a smaller rate of depreciation in October.”.Calgary."The city continues to buck the trend in many respects, being among the few markets still operating well above pre-pandemic activity levels,” says Hogue. “Despite a rising trend in inventories, demand-supply conditions remain generally tight. This hasn’t stopped prices from declining as the MLS home price index (HPI) is off 4.2% since the peak in May but has contained the correction compared to what we’ve seen in most major markets.”.Prices have declined slightly year-over-year and month-to-month..“We expect this will continue in the near term,” says Hogue. “That said, we think Calgary property values might be quicker to recover than most other markets. Tight demand-supply conditions are bound to become the dominant force driving prices once interest rates stabilize.” .“Rebounding in-migration is also likely to set a supportive backdrop for the market.”.Vancouver.“These are especially challenging times for buyers in the area. Rising interest rates have walloped affordability, cooling demand by several degrees,” says Hogue. “The Bank of Canada’s hiking campaign triggered a sharp 44% drop in activity since March, swiftly rebalancing what were previously super-tight demand-supply conditions.”.“We estimate home resales rose more than 10% month-over-month in October though this is unlikely to mark a turning point. We expect activity to stay soft for a while longer given the intense unaffordability pressures.”.Hogue says property values fell 9.2% since April’s peak, including a .6% month-over-month drop in October..“We see prices continuing to slide in the near term though at a moderating rate. October’s drop was the smallest in five months, which points in that direction.”.Greater Toronto Area.“The sharp declining trend seems to be stabilizing,” says Hogue. “Home resales were essentially flat between September and October, edging up just .2% and little changed from July.”.Rising interest rates have put buyers on the sidelines, with supply not increasing..“So far there’s no indication higher rates are triggering any distressed selling wave,” says Hogue. “Demand-supply conditions appear to be levelling off following this spring’s sharp deterioration and while property values are still falling, the pace is starting to ease.”.The composite HPI declined by 1.1% month-over-month in October, less than a third the 3.4% average rate of decline between April and August, says Hogue..“The index is now off 18% since the March peak, reversing almost half the $504,000 increase earlier in the pandemic.,” he says. “October marked the first time the index slipped below the year-ago level, by 1.3%, in more than three years.”. Montreal.The downturn isn’t letting up, says Hogue..“At this stage, more buyers are moving to the sidelines, inventories keep rising and prices keep drifting lower. But the situation is far from dire,” says Hogue. “Demand-supply conditions are reasonably balanced and, despite rising, inventories remain historically low.”.Depending on the area of Montreal being measured, prices are either up slightly from a year ago or on par, says Hogue..“In any case, they’re still nearly 40% above pre-pandemic levels,” he says. “We see this controlled softening in the market persisting in the near term as rising interest rates take a further toll on buyers. Home resales are poised to stay weak, however, with activity now at a seven-year low, we think the bottom could be in sight in early 2023.”.Interest rate hikes are not done, influenced by a recent .75% hike by the US Federal Reserve, says Douglas Porter, chief economist and managing director at BMO Financial Group, i.“We look for a further 100 basis points (bps) of cumulative hikes by the Fed, taking its key rate ultimately to a 4.75%-to-5.00% range by the end of the first quarter of 2023,” says Porter. “For the Bank of Canada, this points to an additional 75 bps of rate hikes, taking the overnight rate to 4.5% by early next year.”
