The outsized increases to the Bank of Canada’s overnight rate since March are having an effect on Canadian housing markets, some more so than others, says Robert Hogue, with RBC Economics. .“Early reports for the most part showed both resale activity and prices continuing to soften in August,” says Hogue. “Toronto and Hamilton, however, saw a modest monthly resales increase, which we think is nothing more than volatility around the clearly downward trend.” .“The majority of markets in Ontario, British Columbia and Quebec operate well below pre-pandemic levels at this stage. Easing demand/supply conditions and souring sentiment are fueling the price correction.”.An upside, says Hogue, is those still in the market to buy have the upper hand in price negotiations, alleviating some of the appreciation over the last two years..“This process is most visible in the suburbs and exurbs of Toronto and Vancouver where price drops have been most significant to date,” he says, adding the number of buyers has reduced as they take a wait-and-see posture, to see how much more prices will decline..Of Canada’s four major housing markets, Hogue says Calgary is faring the best, with a mild correction underway..“The market continues to moderate from sky-high activity levels at the start of this year. But even after six consecutive monthly declines, including a modest 2% month-over-month sales drop in August, home resales remain brisk and far above where they were before the pandemic,” he says. .The price drop in Calgary has been modest, compared to the other markets, with a composite home price index decline of close to 3% since it peaked in May, including a 1.9% decline in August..“We think the downward trajectory is likely to be maintained near term but we don’t see it accelerating much or at all,” says Hogue. “The market is relatively affordable, making buyers in the area less sensitive to interest rates than counterparts in expensive cities like Vancouver or Toronto.”.“Alberta’s much improved economy, job market and in-migration flow also set a more favourable backdrop for buyers.”.The downturn on the west coast is in full swing..“There are no signs Vancouver has reached the bottom yet,” says Hogue. “Activity and prices are still heading south, with home resales falling 4% and the home price index falling 2.2% month-over-month in August.” .“Since the winter peak, sales are off 46% and benchmark prices 6.7%. Suburban markets are under heavier downward pressure. Pitt Meadows (-11.3%), Maple Ridge (-10.9%) and Port Coquitlam (-10.4%) have recorded the largest price declines over the past three months in the Greater Vancouver Area.” .The declines are larger in Fraser Valley markets, with declines of 12.4% in Cloverdale and 15.2% in Mission..“The sharp rise in interest rates and partial return to office are evidently causing buyers to more significantly reprice properties away from Vancouver’s urban core,” says Hogue. “We expect activity to stay quiet in the months ahead in the entire area as the market continues to adjust to the new realities.”.The Greater Toronto Area was an anomaly in August, says Hogue..“The market took a breather from the steep drop in activity since spring. Home resales actually rose 11% in August from July and August on a seasonally-adjusted basis, though still remained well below pre-pandemic levels,” he says. “While it’s too early to call it a bottom, we view it as evidence buyers haven’t given up and are ready to pull the trigger on the right opportunity.”.Lower prices are the opportunity many buyers have been awaiting. Toronto’s composite home price index fell for the fifth consecutive month, down 2.8% in August, a hard decline of $32,900 to $1.12 million. .“Since the March peak, the index has lost almost 16% in value or more than $210,000,” says Hogue. “Suburban single-detached home prices have seen the biggest declines, especially in the Halton and Durham regions.”.“Condo prices have been more resilient. We expect these diverging trends to persist near term as buyers focus on relatively more affordable options such as condos.”.Montreal will see a more rapid rate of decline in the coming months, says Hogue.."The sharp downturn seen in other major markets may be spreading to Montreal after all. Resale activity dipped noticeably last month, falling an estimated 15% from July, seasonally adjusted and 20% from August 2021,” he says. “This is the first time this year the market deviated from its slow and steady moderating trend.”.“The softening in prices also gathered intensity. The median price for single-detached homes fell the most, down 4.5% from July, extending the decline to date to -9.5%, however, the cumulative decline in the median condo price is a lesser 6.1%.”.“We think the market will continue to weaken in the period ahead as higher interest rates challenge buyers. That said, demand-supply conditions are still balanced overall, which should keep prices from spiralling down.”
