Pro IQRA News Updates.
The Canadian real estate market is in a volatile state at the moment.
It’s hard to understand that Canada’s housing sector posted unprecedented gains a year ago – from overwhelming sales activity to incredible price growth – and now the industry is in the midst of a sharp correction. Every market analyst and financial institution has offered an estimate of how much more the country’s real estate market could fall. The Royal Bank of Canada (RBC) projects a decline of 25 percent by the end of next year, while economist Desjardins anticipates a decline of 20 percent next year.
Whatever the case, the Canadian real estate market – be it a large downtown or rural area – is undergoing an extraordinary transition. No one knows when the trend will change and when the next expansionist cycle will begin.
So, what really happened? Here is a list that summarizes what you need to know about the market today.
What You Need To Know About This Canadian Real Estate Market
Here are five things you need to know about what’s going on in the Canadian housing market:
The Price of House #1 Has Started Down
It’s no secret that prices have dropped from the peak of their pandemic. According to the Canadian Real Estate Association (CREA), the national median house price hit $629,971 in July, down five percent from the same time last year. When the Greater Toronto Area (GTA) and Greater Vancouver Area (GVA) are removed from the calculation, the country’s average price will be slashed to approximately $525,000.
In addition, most of the monthly declines occurred in the Ontario real estate market and British Columbia housing sector. Prairies were flat while Atlantic Canada posted gains.
#2 Housing Demand Has Abandoned
In response to the increase in interest rates from the Bank of Canada (BoC), which has had an impact on mortgage rates (see further below), housing demand has waned nationwide.
CREA data showed that national home sales fell 5.3 percent in July, and monthly activity was 29.3 percent below last year’s July. Additionally, sales fell in three quarters of all local markets, led by GTA, GVA, Calgary, Edmonton and Fraser Valley.
“July sees a continuation of the trend we’ve been observing unfold for several months now; sales are declining and prices are falling in parts of the country which are relatively more expensive and where prices have risen the most over the past two years.” said Jill Oudil, Chair of CREA, in a news release.
#3 New Housing Construction Pick-up
Unfortunately, new housing development activity has not returned to the levels seen in early 2021. However, the numbers are increasing gradually this year, according to the Canada Mortgage and Housing Corporation (CMHC). In June, housing starts jumped to 273,800, below the pandemic peak of 305,622. The urban start amounted to slightly more than 257,000 units, while the rural start reached 16,000 units.
“Monthly SAAR was lower in June compared to May; however, housing activity levels started in Canada have historically remained high and well above 200,000 units since 2020,” said Bob Dugan, CMHC’s Chief Economist, in a statement. “The initial decline in monthly SAAR housing in Canadian urban areas was driven by a lower single-separate start in June. Vancouver, Toronto and Montreal all recorded higher starting SAAR totals, driven by higher multi-unit starts except for Montreal where single-separate starts posted higher gains.”
#4 Interest Rates Rise
The central bank has raised its benchmark interest rate to the highest level since the financial crisis more than a decade ago. The institute aims to combat three decades of high inflation with quantitative tightening – a mix of higher interest rates and a reduced balance sheet. The hawkish tone on the Board of Commissioners has affected borrowing costs for potential homebuyers.
Mortgage rates – both fixed and variable rate mortgages – rose higher. But one trend flying under the radar is the challenges many borrowers experience passing mortgage stress tests.
The mortgage stress test, which was raised last year, determines whether homeowners can still pay their mortgages if interest rates rise. Lenders use these rules to determine if you qualify for a mortgage and how much you can borrow. In today’s rising rate environment, homebuyers will need to make an additional $18,000 to pass a mortgage stress test.
#5 Housing Supply is Still Low
The CREA figures highlight that housing supply has not improved. In July, the number of new housing listings fell 5.3 percent on a month-on-month basis. CREA noted that the decline was broad-based, as 75 percent of the local market saw supply declines.
This trend is in line with the new RE/MAX Canada report, which analyzes eight of Canada’s main housing markets coast-to-coast, and finds that seven of them have active inventory levels below the 10-year average.
Additionally, CREA reported only 3.4 months of inventory on the Canadian real estate market in July, which is historically considered low. This figure measures the number of months it would take to spend the current inventory level at the current level of sales activity.
Will Another Trend Form?
The COVID-19 public health crisis has shocked the world. In Canada, the next housing boom, coming amid an economic collapse and falling employment rates, may surprise most people. Currently, sales and prices in many markets are moderate, which could be an indicator of stabilization of conditions going forward. But the higher interest rates rise, the more pain will likely be felt among those involved in the Canadian real estate market.
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