Home sales, prices fall as interest rates rise

The Canadian housing market continued to cool in June. (Bernard Weil/Toronto Star via Getty Images)

The Canadian housing market continued to cool in June as sales and prices fell in the wake of rising interest rates.

The Canadian Real Estate Association (CREA) said Friday that sales in June fell 23.9% from a year ago. The declines affected three-quarters of all markets nationwide, led by the most populous regions including the Greater Toronto Area (GTA), Greater Vancouver, Calgary, Edmonton and Hamilton-Burlington. Sales fell 5.6% from a month ago, marking the fourth consecutive month of decline, although June’s decline was more moderate than those seen in April and May.

The price of an average house has also fallen. CREA reports that the average price of a home in Canada fell 1.8% from last June, to $655,850. Although this marks a moderate decline from 2021, the average price of a home has fallen sharply since the record highs reached in February. Prices fell over $150,000, or more than 18%, from February to June.

“Business activity continues to slow in the face of rising interest rates and uncertainty,” CREA President Jill Oudil said in a statement.

“The cost of borrowing has overtaken supply as the dominant factor affecting housing markets right now, but the supply problem has not gone away.”

The MLS Home Price Index (HPI), which CREA says is a more accurate price comparison than the median or average price, fell 1.9% on a monthly basis. The decline is the largest dating back to 2005, according to Bloomberg News.

After excluding sales in the GTA and Vancouver, Canada’s two hottest real estate markets, the national average home price was $541,350.

ACI says most of the monthly sales declines were seen in Ontario, but it notes that prices also fell in parts of British Columbia. The real estate group says prices are mostly stable in the Prairie provinces, while Quebec is now showing small signs of decline.

The number of new listings climbed 4.1% on a monthly basis, mainly due to an increase in supply from Montreal.

A “seriously shaky” housing market

The slowdown in the housing market comes as the Bank of Canada aggressively tightens monetary policy in the wake of soaring inflation. This week, the Bank surprised markets and economists with an outsized 100 basis point hike, taking the rate to 2.5%. At the start of the year, the central bank’s benchmark rate was 0.25%. The hikes drive up borrowing costs for Canadians, including those with variable rate mortgages and home equity lines of credit.

BMO Capital Markets senior economist Robert Kavcic says June sales numbers show a “seriously wobbly” housing market, before the Bank of Canada’s full one-percentage-point hike hits. be taken into account.

“The period of extreme excessive demand is essentially over, and we are on track for a very weak year in terms of volumes and resale prices,” Kavcic wrote.

“At the end of the day, the market had already crashed after the BoC’s initial rate decision, which only reinforces how sentiment-driven the market was. The 100 basis point rate hike this week sets us up for an even deeper correction into next year.”

As the Bank of Canada warns of more rate hikes to come, TD’s senior director of Canadian economics Randall Bartlett said “it’s hard to see any relief coming any time soon. for owners”.

“The Canadian housing market continues to roll as borrowing costs continue to rise,” he wrote in a research note on Friday.

“Indeed, we are now of the view that there is about the same probability of a recession in 2023, with residential investment being the main drag on the outlook.”

Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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