Canadian housing sales dropped 12.6% from March to April, due in part to the Bank of Canada’s aggressive prime interest rate increases and because of diminishing FOMO — fear of missing out..“Following a record-breaking couple of years, housing markets in many parts of Canada have cooled off pretty sharply over the last two months, in line with a jump in interest rates and buyer fatigue,” said Jill Oudil, chair of the Canadian Real Estate Association (CREA)..“For buyers, this slowdown could mean more time to consider options in the market. For sellers, it could necessitate a return to more traditional marketing strategies.”.Sales were down month-over-month in 80% of the markets measured by CREA, with most large markets posting double-digit declines in April. The exceptions were Victoria, Montreal and Halifax-Dartmouth where sales edged up slightly..The Greater Toronto Area (GTA) recorded a drop of 27% from March to April, and a 41.2% drop, year over year..The Greater Vancouver Area (GVA) saw a 25.6% drop month-over-month and a 34.1% decrease from last April..In the city of Calgary, sales from March to April were down 17% even though sales set a record in April. Year-over-year in Calgary, sales were up 6%..Even with the sales declines, on a national basis, last month was the third-highest April on record for sales..“The aggregate composite MLS home price index was down 0.6% in April from March, the first month-over-month decline since April 2020,” said Oudil..“Regionally, most of the monthly declines were seen in markets in Ontario, although many markets there were also up, while some others were flat. Prices climbed modestly across the Prairies in April, while price growth remained robust in Eastern Canada.”.“Year over year, home price index was still up by 23.8% in April, although this was a marked slowdown from the near 30% record increase logged just two months earlier.”.The national average home price was just over $746,000 in April, a number heavily influenced by prices in the GVA and the GTA. Excluding these markets, the national average price is $608,000..“After 12 years of ‘higher interest rates are just around the corner,’ here they are,” said Shaun Cathcart, CREA’s senior economist. “But it’s less about what the Bank of Canada has done so far. It’s about a pretty steep pace of continued tightening that markets expect to play out over the balance of the year, because that is already being factored into fixed mortgage rates.”.“Of course, those have, for that very reason, been on the rise since the beginning of 2021, so why the big market reaction only now? It’s likely because typical discounted five-year fixed rates have, in the space of a month, gone from the low 3% range to the low 4% range.” .“The stress test is the higher of 5.25%, or the contract rate plus 2%. For fixed borrowers, the stress test has just moved from 5.25% to the low 6% range, close to a 1% increase in a month. It won’t take much more movement by the Bank of Canada for this to start to affect the variable space as well.”.It begs the question: What will the Bank of Canada do at its next rate meeting on June 1? .Will it hold steady over the typically slow sales months of the summer, or continue its aggressive increases?.If a speech by Bank of Canada deputy governor, Toni Gravelle, given on May 12 in Montreal, is any indication, it will be the latter..Gravelle said borrowing costs need to rise quickly to more normal levels to bring inflation back to target, and that the current policy interest rate of 1% is “too stimulative.”.Gravelle reiterated the Bank’s intention of taking the rate to a neutral range of 2% to 3%..“We are taking actions to normalize our policy rate quickly and are prepared to be as forceful as needed,” he said..Gravelle suggested the bank “may pause increases to interest rates at the neutral range if price pressures begin to reverse course, or if heavily indebted Canadian households reduce their spending by more than expected.”.He suggested hiking borrowing costs above the neutral range is a possibility if global supply chain issues persist, or parts of the domestic economy end up being less sensitive to higher interest rates than expected..“We are not on a pre-set path of policy rate increases aimed at getting to a specific terminal rate,” he said. “Our decisions are not on autopilot.”.His comments have market watchers suggesting a second big rate hike, likely 50%, on June 1, after a 50-basis point increase in April. .Investors see Canada’s benchmark interest rate rising above 3% over the next 12 months in one of the most aggressive tightening cycles since the 1990s.
Canadian housing sales dropped 12.6% from March to April, due in part to the Bank of Canada’s aggressive prime interest rate increases and because of diminishing FOMO — fear of missing out..“Following a record-breaking couple of years, housing markets in many parts of Canada have cooled off pretty sharply over the last two months, in line with a jump in interest rates and buyer fatigue,” said Jill Oudil, chair of the Canadian Real Estate Association (CREA)..“For buyers, this slowdown could mean more time to consider options in the market. For sellers, it could necessitate a return to more traditional marketing strategies.”.Sales were down month-over-month in 80% of the markets measured by CREA, with most large markets posting double-digit declines in April. The exceptions were Victoria, Montreal and Halifax-Dartmouth where sales edged up slightly..The Greater Toronto Area (GTA) recorded a drop of 27% from March to April, and a 41.2% drop, year over year..The Greater Vancouver Area (GVA) saw a 25.6% drop month-over-month and a 34.1% decrease from last April..In the city of Calgary, sales from March to April were down 17% even though sales set a record in April. Year-over-year in Calgary, sales were up 6%..Even with the sales declines, on a national basis, last month was the third-highest April on record for sales..“The aggregate composite MLS home price index was down 0.6% in April from March, the first month-over-month decline since April 2020,” said Oudil..“Regionally, most of the monthly declines were seen in markets in Ontario, although many markets there were also up, while some others were flat. Prices climbed modestly across the Prairies in April, while price growth remained robust in Eastern Canada.”.“Year over year, home price index was still up by 23.8% in April, although this was a marked slowdown from the near 30% record increase logged just two months earlier.”.The national average home price was just over $746,000 in April, a number heavily influenced by prices in the GVA and the GTA. Excluding these markets, the national average price is $608,000..“After 12 years of ‘higher interest rates are just around the corner,’ here they are,” said Shaun Cathcart, CREA’s senior economist. “But it’s less about what the Bank of Canada has done so far. It’s about a pretty steep pace of continued tightening that markets expect to play out over the balance of the year, because that is already being factored into fixed mortgage rates.”.“Of course, those have, for that very reason, been on the rise since the beginning of 2021, so why the big market reaction only now? It’s likely because typical discounted five-year fixed rates have, in the space of a month, gone from the low 3% range to the low 4% range.” .“The stress test is the higher of 5.25%, or the contract rate plus 2%. For fixed borrowers, the stress test has just moved from 5.25% to the low 6% range, close to a 1% increase in a month. It won’t take much more movement by the Bank of Canada for this to start to affect the variable space as well.”.It begs the question: What will the Bank of Canada do at its next rate meeting on June 1? .Will it hold steady over the typically slow sales months of the summer, or continue its aggressive increases?.If a speech by Bank of Canada deputy governor, Toni Gravelle, given on May 12 in Montreal, is any indication, it will be the latter..Gravelle said borrowing costs need to rise quickly to more normal levels to bring inflation back to target, and that the current policy interest rate of 1% is “too stimulative.”.Gravelle reiterated the Bank’s intention of taking the rate to a neutral range of 2% to 3%..“We are taking actions to normalize our policy rate quickly and are prepared to be as forceful as needed,” he said..Gravelle suggested the bank “may pause increases to interest rates at the neutral range if price pressures begin to reverse course, or if heavily indebted Canadian households reduce their spending by more than expected.”.He suggested hiking borrowing costs above the neutral range is a possibility if global supply chain issues persist, or parts of the domestic economy end up being less sensitive to higher interest rates than expected..“We are not on a pre-set path of policy rate increases aimed at getting to a specific terminal rate,” he said. “Our decisions are not on autopilot.”.His comments have market watchers suggesting a second big rate hike, likely 50%, on June 1, after a 50-basis point increase in April. .Investors see Canada’s benchmark interest rate rising above 3% over the next 12 months in one of the most aggressive tightening cycles since the 1990s.
