Market News

The toll that rising interest rates are taking across Canada’s housing markets became even more apparent this past week as reports from local real estate boards revealed the downturn was deepening from coast to coast.

“Prices are sliding fast, and the exuberance that permeated these markets earlier this year is being replaced by fear,” wrote RBC assistant chief economist Robert Hogue in a recent note.

“In the Toronto and Vancouver areas, the decline in activity is quickly becoming one of the deepest of the past half a century.”

Apart from the dive housing took in the early COVID-19 lockdown, home sales in Toronto have fallen to the slowest pace in 13 years, Hogue said.

Meanwhile, inventories are climbing quickly, up 58% from a year ago, and buyers are now managing to get “meaningful price concessions” from sellers, he said.

Since March the composite MLS Home Price Index has shed $178,000, or 13%, falling to $1.16 million. In July alone prices declined 3.9% or $47,000.

Toronto is not a buyer’s market yet, according to the sales to new listings ratio, but RBC expects home hunters in the GTA to continue to find better deals, especially in the 905 areas outside of the core where prices soared during the pandemic.

Vancouver, where home sales are down 40% over the past four months, is also experiencing a big chill. July saw an estimated 9% decline.

Home prices have fallen 4.5% since April, or more than $57,000, but RBC thinks the correction here is still in its early stages.

It expects prices to fall more rapidly in coming months, especially in the detached home sector.

The heavy hit to Canada’s two most expensive cities was predictable, but signs of the correction are now cropping up in more affordable cities as well.

“The downturn may be more contained in other markets but unmistaken nonetheless,” wrote Hogue.

Home sales in Montreal this year have been slowing gradually and by July had declined to 17% below pre-pandemic levels. That and a rise in inventories have returned the market to balance, said Hogue.

Previously this had just slowed the growth in prices, but July could be a turning point, with both single-family homes and condo prices actually declining.

“This development took place across the region, suggesting a board-based price correction may be underway,” said Hogue.

Even in Calgary, this year’s real estate star, there are signs the market is softening. Home sales remain at historically high levels, but have calmed since the buying frenzy seen at the beginning of the year.

Higher interest rates are pushing buyers to more affordable options, like condos, and demand for more expensive detached homes is down.

Calgary’s composite MLS HPI peaked in May and has slipped lower since, he said.

A speedy rise to interest rates are the reason for the cross-country correction and with rates expected to go even higher (RBC forecasts another 75 basis by the fall) it will only get worse.

“We expect the downturn to intensify and spread further as buyers take a wait-and-see approach while ascertaining the impact of higher lending rates,” said Hogue.

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THE TEAM BEHIND THE ‘NUMBER’ Canadians are in a historic, inflationary moment — the likes of which some have never seen in their lifetime. The drumbeat of grim, inflation statistics has been steadily pounding for over a year now, pushing the consumer price index to a high of 8.1% in June. But have you ever wondered who calculates “the number” and how they do it? The Financial Post’s Joe O’Connor goes behind the scenes at Statistics Canada’s Consumer Price Division and meets economists like Andrew Barclay, above, to get the scoop on the price “nerds.” Photo by Statistics Canada