You may have noticed the house around the corner with the For Sale sign planted on its lawn.
You may have noticed that the house didn’t sell in its first week on the market. Or the second week. Three weeks have now passed, and he is still there. Is it just because it’s summer? Or is it something else? This is another thing.
The housing market correction has arrived, as shown by the latest figures released by various housing groups. The slowdown is faster and more dramatic than expected. The days on the market are multiplying; active listings are on the rise.
Royal Bank’s most recent forecast for the housing market calls for a nationwide plunge in resales surpassing previous peak-to-trough declines, as the bank puts it, comparing its forecast of what lies ahead to, say, 1981-1982 or 2008 -’09.
As the national housing market slowdown accelerated last month, the average sale price of a home hit $665,850, down nearly 20% since February. Average selling prices have fallen every month since February 2022 and are down 1.8% from a year ago.
The Canadian Real Estate Association (CREA), which represents more than 100,000 brokers, agents and salespeople across the country, said in July the volume of home sales fell 5.6% in the month. and was down nearly a quarter from a year ago.
It’s worth noting that Ontario is leading the way down as selling prices in the province’s suburban markets that rose the most during the pandemic are now coming back down to earth.
“Activity continues to slow in the face of rising interest rates and uncertainty,” CREA President Jill Oudil said in a statement.
Naturally enough, these reports make headlines. It’s human nature to be very attentive to language such as “collapse”, or “historical correction”, or images of bursting bubbles.
But the more nuanced language tells us what we really need to know. RBC’s predictions, if realized, would result in what the bank calls “a welcome cooling after a two-year frenzy.” This is a correction, not a meltdown, the bank concluded, with its long-term forecast pegging the end of the correction at some point in the first half of next year.
We can agree that the housing market galloped through a prolonged phase of delirium, in which abnormally low interest rates played a central role. And then came COVID, with the Bank of Canada responding to the economic impacts of the pandemic by lowering its key rate to a quarter of a percent. And we can see how the current rising interest rate environment, in particular the significant 100 basis point increase in the bank’s benchmark rate last month, is now pulling the reins tight.
And, yes, the pain will be felt by homeowners who have to renegotiate their mortgages. Another rate hike from the Bank of Canada is expected at its next rate setting in a month.
There is an advantage. What the data really shows is not price growth, but price moderation. The explosive growth in demand and prices could not continue indefinitely. The height of the madness came in the form of blind auctions, which we believe shouldn’t be allowed, and no-strings-attached offers that have led some desperate buyers to forgo home inspections just to stare mournfully at previously undetected issues, from creeping mold to sketching. electrical work on sagging floor joists. It’s a nasty surprise when you make what for many is the most important financial decision of their lives.
Where does this lead us? With the balance of power going back to the consumer, it’s there. And with a growing sense that a return to sanity in the real estate market is finally upon us.