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Home prices continue to fall in June

Home prices fall again in May; down 13% from February’s peak

Average home prices in Canada continued to fall in May, while home sales were down in three-quarters of all markets.

The average (not seasonally adjusted) home price dipped to $711,316 in May, according to data from the Canadian Real Estate Association (CREA). That’s down 4.6% from the previous month and nearly 13% from February. Prices remain 3.4% above year-ago levels, but if the current trend continues that’s likely to dip negative as well.

Meanwhile, sales were down 8.6% from April, falling to pre-COVID levels and just slightly above the 10-year average.

“Ultimately, this has been expected and forecast for some time – a slowdown to more normal levels of sales activity and a flattening out of prices,” said senior CREA economist Shaun Cathcart.

“What is surprising is how fast we got here,” he added. “With the now very steep expected pace of Bank of Canada rate hikes, and fixed mortgage rates getting way out in front of those, instead of playing out steadily over two years, that cooling off of sales and prices seems to have mostly played out over the last two months.”

The benchmark Home Price Index (HPI), which removes some of the seasonal volatility, recorded a smaller month-over-month decline of 0.8%, its second monthly decline.

Removing the high-priced markets of the Greater Toronto and Vancouver areas, the average price stands at $588,816, which is 7.4% higher than a year ago.

The number of months of inventory rose to 2.7, up from its all-time low of 1.6, but still well below its long-term average of around five months, CREA noted.

Cross-country roundup of home prices

Here’s a look at select provincial and municipal average house prices as of May, with their annual and monthly changes.

LocationAverage PriceAnnual price changeMonth-over-month change
Nova Scotia$417,500+31.7%+0.8%
Quebec$514,925+14.6%+0.7%
B.C.$915,392+8.1%-13.5%
Ontario$940,485+8.7%-4.6%
Alberta$477,009+7.7%+2.4%
Halifax-Dartmouth$547,800+33.2%+3.7%
Barrie & District$955,600+25.6%+1.7%
Greater Toronto$1,261,800+23.9%-6.8%
Victoria$976,600+26.5%-2.7%
Greater Vancouver $1,261,100+14.7%-8.3%
Greater Montreal$555,600+15.1%-3.1%
Calgary$532,200+15.2%+4%
Ottawa$712,600+9.7%-5.5%
Winnipeg$369,600+11%+5.3%
St. John’s$308,100+7.9%+4%
Edmonton$409,800+9.2%+10.3%

Reaction to the latest housing market trends

Despite the decline in the average national price, TD Bank’s Rishi Sondhi says it’s important to remember that “there’s a regional story playing out underneath the national headline.”

For example, Sondhi notes sales and prices are down disproportionately in Ontario and B.C. markets, which felt the brunt of affordability challenges during the pandemic.

“Note that activity is also retrenching especially hard in the GTA, where investors have played a relatively large role in the market over the past year,” he added.

But while activity has softened in Alberta, sales are still elevated and markets are “fairly tight.”

While rising interest rates are officially meant to target today’s 30-year high inflation, it’s clearly now having an impact on housing markets across the country.

“The housing market in many regions in Canada continued its adjustment to higher rates and shifts in buyers’ attitudes in May,” wrote Scotiabank’s Farah Omran. “The recent recalibration in the housing market is a welcome development, and an intended consequence of higher borrowing rates.”

CREA updates its 2020 forecast

For the second time in three months, CREA has updated its forecasts for home prices and sales for the remainder of the year.

The association said a rapid rise in 5-year fixed mortgage rates this year has had a significant impact on cooling home sales in recent months. It noted that in April alone, discounted 5-year fixed rates rose from the low 3% range to the low 4% range.

“A critical element of the story has been the impact that discounted 5-year fixed mortgage interest rate levels have had on the stress test,” CREA noted. The mortgage stress test for both insured and uninsured mortgages ensured borrowers could afford interest rates at the higher of their contract rate plus 2% or 5.25%.

“For fixed-rate borrowers, qualifying for the stress test has moved from 5.25% to the low 6% range – close to a 1% increase. Variable rates will now be playing catch-up over the balance of 2022,” CREA added.

As a result, it has lowered its sales forecast for the year to 568,288 units, a 7% decline from its previous forecast of 612,800 sales and 14.7% below the 2021 record.

CREA expects the national average home price to rise 10.8% in 2022 to $762,386, down from its previous forecast of $786,000. The new forecast is now roughly $70,000 lower than its initial 2022 forecast released in December.

Looking ahead to 2023, CREA now expects home sales to post a 2.8% decline to 552,403 units, while home prices are expected to post a modest 3.1% annual gain to $786,282.