Canadian real estate markets are experiencing a significant slowdown as higher interest rates take a toll on the housing sector. Recent data from October indicates a decline in existing home sales and a simultaneous increase in inventory, leading to a double pace in the decline of home prices compared to the previous month.
In October, existing home sales in Canada fell by 5%, marking a 12% decline over the past four months. This decline in sales has been accompanied by a rise in inventory, putting downward pressure on home prices. The price of a typical home dropped by 0.8% in October, resulting in a doubling of the rate of decline compared to the previous month. If this trend continues, it could lead to negative territory for unadjusted annual growth.
Robert Hogue, the assistant chief economist at RBC, expects this downward trend to persist in the coming months. He attributes the broad decline to higher interest rates and a lack of affordability, particularly in provinces such as British Columbia (BC) and Ontario, where prices have been the highest.
Ontario, which initially experienced a surge in real estate market activity, is now leading the downturn. Rising interest rates had previously driven up prices, but the reversal of this trend is now evident in Ontario’s market. Home resales in the province have fallen for five consecutive months, reaching their lowest levels since the Great Financial Crisis, excluding the pandemic shutdown period.
Other regions that had managed to defy the national slowdown are also starting to show signs of weakening. Alberta, for example, saw existing home sales decline by 8.3% in October.
Despite some mortgage rate relief, the RBC anticipates the softening of the Canadian real estate market to continue. The combination of high interest rates, affordability challenges, and economic uncertainty has suppressed homebuyer demand, especially in high-priced markets like Ontario and BC. The bank predicts that the trend will persist into the next year, with higher interest costs leading to an increase in sellers and potentially giving buyers even more pricing power. This could result in further price erosion in Ontario and BC.
The RBC warns that this weakness in the market may spread to other regions as well. A turnaround is not expected until interest rates start to decrease, and the bank does not anticipate the first Bank of Canada policy cut until mid-2024. This aligns with market expectations of the policy rate remaining stable despite falling bond yields.
Frequently Asked Questions (FAQ)
1. What is causing the slowdown in Canadian real estate markets?
The slowdown in Canadian real estate markets can be attributed to higher interest rates and a lack of affordability, particularly in provinces like British Columbia (BC) and Ontario.
2. How has Ontario been affected by the slowdown?
Ontario, which previously experienced a surge in real estate market activity, is now leading the downturn. Rising interest rates have reversed the trend of rapidly increasing prices in the province.
3. Are there any regions in Canada that have been resistant to the national slowdown?
Some regions, such as Alberta, had initially managed to defy the national slowdown. However, they are now starting to show signs of weakening, with existing home sales declining in October.
4. Will the softening of the Canadian real estate market continue?
According to the RBC, the softening of the Canadian real estate market is expected to continue. Factors such as high interest rates, affordability challenges, and economic uncertainty are likely to keep homebuyer demand muted, particularly in high-priced markets like Ontario and BC.
5. When can we expect a turnaround in the market?
A turnaround in the Canadian real estate market is not anticipated until interest rates begin to decrease. The RBC does not expect the first Bank of Canada policy cut to happen until mid-2024.