Bottom still a long way off for Canadian housing market, says RBC

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Good morning!

Yesterday brought the latest numbers on Canada’s housing market, confirming that the pandemic boom is over.

Home sales fell 5.3% in July, the fifth straight month of declines. Benchmark prices were also down 1.7% from the previous month.

Since March, when the Bank of Canada began raising interest rates to combat decades-high inflation, home sales have fallen 31% and benchmark prices by nearly 6% globally. nationally, according to Robert Hogue, RBC’s deputy chief economist.

“And the bottom is probably still several months away because our central bank still has work to do,” Hogue wrote in a note yesterday.

The Bank of Canada’s 100 basis point hike in July “threw ice water in the market,” Hogue said, as it disqualified some buyers from getting a mortgage and reduced the size of the mortgage. for others.

Rising borrowing costs are prompting buyers and sellers to think carefully about their next move.

Potential buyers are holding back in case prices fall further, while sellers wonder if they too should wait for the market to turn in their favor, said Canadian Real Estate Association president Jill Oudil. , in a press release yesterday.

New listings fell 5.3% between June and July, with the number of months of inventory falling from 3.1 to 3.4, the highest level in two years, economists at the National Bank of Canada said. .

According to National, market conditions eased in all provinces in July, with six out of 10 provinces now in balanced territory.

The fall in some of Ontario’s most overheated markets is already staggering. House prices fell by $166,000 in Cambridge (-17%) and $95,000 in Guelph (-10%), while Kitchener-Waterloo saw prices slip by -16% and Brantford and London, from -14% from their February high, Hogue said.

In the Greater Toronto Area, the MLS Composite Home Price Index has fallen 7% ($89,000) over the past five months.

In British Columbia, the Fraser Valley leads the correction, Hogue said, with benchmark prices down 5.6% ($65,000) since March, more than double the drop seen in Vancouver. .

Hogue expects the correction to be softer in markets outside of Ontario and British Columbia, but cracks are starting to show.

Over the past two months, the MLS Composite Home Price Index has declined slightly in Montreal and Quebec, suggesting prices have peaked. Prices in Alberta, Manitoba and Nova Scotia have also been falling for the past few months.

“We believe these elements provide growing evidence that a broad-based slowdown is underway in Canada,” Hogue said.

The Bank of Canada’s additional 100 basis point hikes in September and October will further cool the market, driving home sales down 23% nationwide this year and another 15% next year, predicts RBC.

So when will we hit rock bottom?

Look for it in the spring, says RBC. He believes the market will adjust to higher interest rates by early 2023, then need a few months to tighten supply and demand conditions.

At that time, prices nationwide will be down about 12% from the peak, RBC predicts. Ontario and British Columbia could see declines of more than 14%, while prices in Alberta and Saskatchewan could get away with declines of less than 3%.

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ATTENTION BUYERS Chaos and panic recently ensued at an Ikea in Shanghai when health authorities tried to impose “temporary control measures” on the store after discovering that a close contact of a 6-year-old boy with an asymptomatic COVID infection was there. The news of the zipper had shoppers running and screaming in an attempt to get out of the building before the doors were locked, videos on social media showed (above). Those who failed to get out were locked inside the store from 8 p.m. until shortly after midnight, when they were moved to quarantine hotels. They would be required to do two days of quarantine and then five days of health surveillance. Photo taken from a video on Twitter

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The “housing correction in Canada is well underway,” BMO senior economist Robert Kavcic wrote after the release of Canadian Real Estate Association data for July on Monday.

Home sales fell 5.3% from June and 29.3% from a year ago. “Unadjusted, it was the quietest July for sales since the 2020 financial crisis,” Kavcic said.

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If you are looking to invest in real estate, you may want to look beyond residential properties. Our content partner MoneyWise has some ideas for niche REITs that offer better returns.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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