Early signs indicate the real estate correction that’s gripped Canada’s housing market for much of the year may be easing, according to a new report — despite the fact that in August, home sales and prices fell once more.
Canadian home sales nosedived 24.7 per cent in August compared to the same month last year while the average price fell 3.9 per cent to $637,673 over the same period, according to the Canadian Real Estate Association in a new market update.
Sales edged lower by 1 per cent from July, marking the sixth straight month of declines in activity, albeit by the smallest degree since the winter months. (July, when transactions dropped 5 per cent from June, had previously recorded the slightest monthly decline.)
“August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” said Jill Oudil, CREA’s chair. “That said, some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing,” Oudil added.
Following a record-setting February, Canadian home sales began trending lower after the Bank of Canada embarked on its first of five consecutive hikes to its key interest rate so far this year. The move has increased mortgage rates for many and led some to make budget cuts.
With more buyers taking a wait-and-see approach due to growing uncertainty around interest rates, the number of new listings in August was down 5.4 per cent from July. “Some sellers appear content to stay on the sidelines until more buyers are ready to get back into the market,” according to the CREA market update.
Sales declined in about half of all local markets, less widespread than the cooling that swept through roughly three-quarters of them in July, although in a response to the CREA data TD Economics points out that on a provincial level month-over-month sales were only up in Ontario. Among local markets that did see sales firm up, the Greater Toronto Area and several other Ontario centres experienced the greatest gains, notes CREA in the market update.
“The increase in [GTA] sales in this month could be a blip in activity as people on the sidelines decided to step into the market looking for deals now that market power has shifted over to buyers in lieu of sellers like six to eight months ago,” Edgard Navarrete, Central 1 Credit Union’s regional economist for Ontario, tells Post City in an email. “It is very possible though that the increased interest rates coming from a higher Bank of Canada policy rate could stall the market.”
The Bank of Canada embarked on its latest hike on Sept. 7, meaning the full impact remains to be seen. And with two more scheduled interest rate announcements scheduled for this year, policymakers are sending signals that there’s still more to come. Amid heightened interest rates, CREA has revised its housing market forecasts for 2022 and 2023.
The association now anticipates 568,288 properties to change hands this year — the second-highest annual tally on record but 14.7 per cent shy of 2021’s all-time best — before declining in 2023 by 2.8 per cent.
“With conditions in the market changing quite rapidly, this was a considerable downward revision from the previous forecast published in March,” says CREA in a statement announcing its updated forecast. Meanwhile, CREA predicts the average price of a Canadian home to settle at $762,386 this year, 10.8 per cent higher than 2021, with more muted growth of 3.1 to follow in 2023.
Despite the prospect of even higher borrowing costs, Navarrete doesn’t rule out the possibility of a run-up in activity, at least in the GTA, before the New Year.
“The housing market has been quite countercyclical during most of the pandemic and a resurgence in activity could happen again,” writes Navarrete. “Perhaps investors with deep pockets or buyers continuing to get help from parents will make a rally (purchasing homes) before the year is out.”