During the last two years, the Canadian housing market could be viewed as a huge vat of boiling water as the intensity of sales and price increases broke long standing records, with record low interest rates fueling the fire..Now, the heat has gone from high, to medium and will soon be on simmer, as the Bank of Canada raises rates..Robert Hogue, assistant chief economist at RBC Economics, says the rate raises have affected some markets differently than others..“Extremely bullish market sentiment is souring in parts of the country that saw tremendous price gains over the past year. This was the case in many southern Ontario markets,” Hogue. .The Home Price Index (HPI)fell an average of 2.19% in April in the major southern Ontario metros..A similar decline, 2%, occurred in BC’s lower mainland in April although the Vancouver area saw a very slight increase of .3%, the lowest rate of increase in two years..It’s a different story on the east coast and Canada’s heartland, says Hogue..“Despite some moderation in April, activity continues to be hectic in Atlantic Canada and the Prairie provinces. With supply still low, this maintains intense upward pressure on prices in these regions,” he says. .“The HPI continued to soar in April in Halifax-Dartmouth, up 5.6% month over month, in Saint John, up 3.2%, Fredericton, up 2.7% and Moncton, up 2.4%.”.Increases on the Prairies were more moderate, led by Edmonton, up 1.4%, Regina up 1.2%, Calgary up .8%, Saskatoon up 0.6% and Winnipeg up .4%. .“The resilience in Atlantic Canada and the Prairies can be largely explained by their relative affordability. Lower priced markets are less sensitive to rising rates,” says Hogue. .“This advantage will continue to support demand and prices in those regions, though it won’t entirely offset the impact of the Bank of Canada raising its policy rate to 2.5% by the fall, as we expect.”.“Buyers in Canada’s most expensive markets, mainly located in Ontario and British Columbia, will be the most affected by higher borrowing costs.”.The bank’s intention is to moderate price growth by tempering demand, which has started, says Hogue..“Benchmark prices fell month-over-month, at a rate of .6%, for the first time in two years. This is a remarkable turn of events,” he says..“Property values soared at the fastest pace on record through the fall and winter, as super-strong demand and scarce supply fueled bidding wars from coast to coast. We expect our central bank’s forceful monetary policy normalization will further cool demand in the period ahead.”.The housing demand-to-supply ratio remains an issue, but some improvement, albeit small, is taking place..“Demand-supply conditions remain tight overall but the trend is improving. In some (southern Ontario) markets, the sales-to-new listings ratio even reached balanced-market territory in April,” says Hogue..“The rebalancing process is taking place predominantly on the demand side with buyers facing more challenging affordability conditions. The number of sellers entering the market is still shrinking. New listings fell 2.2% month over month in Canada and in a majority of markets including Vancouver, Calgary, Saskatoon, Winnipeg, Hamilton, Toronto and Ottawa.”.A key component of supply is new home construction..The Canada Mortgage and Housing Corporation (CMHC) reports builders, in April, were on pace to start construction on 267,300 new homes, an 8% increase over March, with the majority being multi-family homes..However, April's gains were in only four of 10 provinces: Manitoba, Saskatchewan, Alberta and BC..Hogue says the market has likely peaked..“We think the sizable drop in activity in April marks a turning point for the Canadian market with further cooling on the way,” he says..“The Bank of Canada’s setting out to aggressively normalizing its monetary policy is a game-changer for the market, turning what has been a tremendous tailwind into a stiff headwind for the market.”.It’s not a matter of pouring cold water on the fire, but a welcome correction, says Hogue..“After a nearly two year-long frenzy that propelled property values to the stratosphere in many parts of the country, a calmer outlook for the market should be welcome news,” he says..“We expect the burgeoning price correction seen in Ontario and parts of British Columbia to deepen and spread to other markets as market sentiment sours but it’s unlikely to morph into a meltdown.” .“Positive demographic factors will provide a safety net against a hard landing.”
During the last two years, the Canadian housing market could be viewed as a huge vat of boiling water as the intensity of sales and price increases broke long standing records, with record low interest rates fueling the fire..Now, the heat has gone from high, to medium and will soon be on simmer, as the Bank of Canada raises rates..Robert Hogue, assistant chief economist at RBC Economics, says the rate raises have affected some markets differently than others..“Extremely bullish market sentiment is souring in parts of the country that saw tremendous price gains over the past year. This was the case in many southern Ontario markets,” Hogue. .The Home Price Index (HPI)fell an average of 2.19% in April in the major southern Ontario metros..A similar decline, 2%, occurred in BC’s lower mainland in April although the Vancouver area saw a very slight increase of .3%, the lowest rate of increase in two years..It’s a different story on the east coast and Canada’s heartland, says Hogue..“Despite some moderation in April, activity continues to be hectic in Atlantic Canada and the Prairie provinces. With supply still low, this maintains intense upward pressure on prices in these regions,” he says. .“The HPI continued to soar in April in Halifax-Dartmouth, up 5.6% month over month, in Saint John, up 3.2%, Fredericton, up 2.7% and Moncton, up 2.4%.”.Increases on the Prairies were more moderate, led by Edmonton, up 1.4%, Regina up 1.2%, Calgary up .8%, Saskatoon up 0.6% and Winnipeg up .4%. .“The resilience in Atlantic Canada and the Prairies can be largely explained by their relative affordability. Lower priced markets are less sensitive to rising rates,” says Hogue. .“This advantage will continue to support demand and prices in those regions, though it won’t entirely offset the impact of the Bank of Canada raising its policy rate to 2.5% by the fall, as we expect.”.“Buyers in Canada’s most expensive markets, mainly located in Ontario and British Columbia, will be the most affected by higher borrowing costs.”.The bank’s intention is to moderate price growth by tempering demand, which has started, says Hogue..“Benchmark prices fell month-over-month, at a rate of .6%, for the first time in two years. This is a remarkable turn of events,” he says..“Property values soared at the fastest pace on record through the fall and winter, as super-strong demand and scarce supply fueled bidding wars from coast to coast. We expect our central bank’s forceful monetary policy normalization will further cool demand in the period ahead.”.The housing demand-to-supply ratio remains an issue, but some improvement, albeit small, is taking place..“Demand-supply conditions remain tight overall but the trend is improving. In some (southern Ontario) markets, the sales-to-new listings ratio even reached balanced-market territory in April,” says Hogue..“The rebalancing process is taking place predominantly on the demand side with buyers facing more challenging affordability conditions. The number of sellers entering the market is still shrinking. New listings fell 2.2% month over month in Canada and in a majority of markets including Vancouver, Calgary, Saskatoon, Winnipeg, Hamilton, Toronto and Ottawa.”.A key component of supply is new home construction..The Canada Mortgage and Housing Corporation (CMHC) reports builders, in April, were on pace to start construction on 267,300 new homes, an 8% increase over March, with the majority being multi-family homes..However, April's gains were in only four of 10 provinces: Manitoba, Saskatchewan, Alberta and BC..Hogue says the market has likely peaked..“We think the sizable drop in activity in April marks a turning point for the Canadian market with further cooling on the way,” he says..“The Bank of Canada’s setting out to aggressively normalizing its monetary policy is a game-changer for the market, turning what has been a tremendous tailwind into a stiff headwind for the market.”.It’s not a matter of pouring cold water on the fire, but a welcome correction, says Hogue..“After a nearly two year-long frenzy that propelled property values to the stratosphere in many parts of the country, a calmer outlook for the market should be welcome news,” he says..“We expect the burgeoning price correction seen in Ontario and parts of British Columbia to deepen and spread to other markets as market sentiment sours but it’s unlikely to morph into a meltdown.” .“Positive demographic factors will provide a safety net against a hard landing.”
