Higher interest rates put a chill on Canada’s housing markets in July
Home sales and prices continued to ease in July following the two latest rate hikes from the Bank of Canada.
On a seasonally adjusted basis, home sales fell 0.7% from June to July, according to the latest monthly data from the Canadian Real Estate Association. This marks the first monthly contraction in six months.
While sales of existing homes were up in five of the 10 provinces, including Saskatchewan (+9%), Quebec (+5.1%) and Alberta (+4%), the declines in B.C. (-2.6%) and Ontario (-5.5%) were enough to reverse the upwards trend seen in recent months.
Calgary remained a notable exception, where home sales are up 9% since the Bank of Canada resumed its rate hikes.
“With the growing impact of interest rate hikes and our expectation for a slowing labour market, the real estate market could continue to lose momentum in the months ahead,” noted National Bank’s Daren King.
King added that the record demographic growth Canada is experiencing is helping to prevent a “significant” drop in sales.
National average price down 18% from peak
CREA reported that the national average home price (not seasonally adjusted) continued to fall in July to $668,754. While that’s up 6.3% compared to a year ago, it’s down over 18% from the peak reached in February 2022 of $816,720.
“Following a brief surge of activity in April, housing markets have settled down in recent months, with price growth now also moderating with its usual slight lag,” said Shaun Cathcart, CREA’s Senior Economist.
“Sales and price growth are already showing signs of tapering off further in August in response to the Bank of Canada’s mid-July rate hike and messaging regarding above-target inflation for longer than previously expected,” he added. “We’re probably looking at another round of ʻback to the sidelines’ for some buyers until there’s a higher level of certainty around interest rates going forward.”
Cross-country roundup of home prices
Here’s a look at select provincial and municipal average house prices as of July.
Annual price change
Barrie & District
*Some of the movements in the table above may be somewhat misleading since average prices simply take the total dollar value of sales in a month and divide it by the total number of units sold. The MLS Home Price Index, on the other hand, accounts for differences in house type and size and adjusts for seasonality.
Resale market is returning to balance
CREA also reported that the number of newly listed homes continued to increase for the fourth straight month, rising 5.6% from June. “Building on gains of 2.8% in April, 7.9% in May, and 5.9% in June, new listings have gone from a 20-year low in March to closer to (but still below) average levels by mid-summer,” CREA noted.
This caused the sales-to-new listings ratio to ease to 59.2%, down from 63% in June and a peak of 68% in April. Supply also ticked up to 3.1 months of inventory from 3 in June.
“With sales dipping and resale supply on the rise, markets are moving towards being more balanced,” said TD Economics’ Rishi Sondhi.
National Bank’s Daren King also pointed to a rise in cancelled listings in the month, which he said indicated a “loss of momentum in the real estate market.” He said it’s “a sign that some sellers are discouraged by recent interest rate hikes.”
Looking ahead, real estate markets are expected to face continued headwinds from elevated interest rates, even if the Bank of Canada remains on hold from here.
BMO’s Robert Kavcic notes that interest rates are likely to remain at current elevated levels into next year, which will continue to act as a headwind for the housing market.