Canadian home sales fell for the fifth consecutive month and prices continue to decline as rising interest rates keep prospective buyers on the sidelines.
The Canadian Real Estate Association (CREA) said on Monday that national home sales fell 29.3 per cent compared to last year. Sales were down 5.3 per cent from June, marking the fifth straight month of decline, although July's drop was the smallest of the last five declines. CREA says sales were down in about three-quarter of all local markets, led by the Greater Toronto Area (GTA), Greater Vancouver and the Fraser Valley, Calgary and Edmonton.
Home prices also continue to drop, with the average price of a home falling 5 per cent compared to last July, coming in at $629,971. Stripping out sales in the GTA and Greater Vancouver – the two most active and expensive housing markets in the country – cuts $104,000 from the national average price. The MLS Home Price Index (HPI), which CREA says is a more accurate price comparison than the median or average price, declined 1.7 per cent on a monthly basis, with the benchmark price dropping to $789,600.
"July saw a continuation of the trends we’ve been watching unfold for a few months now; sales winding down and prices easing in some relatively more expensive parts of the country as well as places where prices rose most over the past two years," CREA chair Jill Oudil said in a statement.
"That said, the demand that was so strong just a few months ago has not gone away, but some buyers will likely stay on the sidelines until they see what happens with borrowing costs and prices. As they re-enter the market, they'll find a bit more selection, but not as much as might be expected."
While the average price of a home fell in July, CREA data show that prices have actually increased on an annual basis in all provinces except Ontario. CREA notes that rising interest rates "disproportionally curb sales in more expensive markets and market segments" and that a change in sales composition "can cause the national average price to overstate the downward pressure on actual prices."
The cooling of the Canadian housing market comes as the Bank of Canada aggressively hikes its benchmark interest rate in the wake of soaring inflation. The central bank's key interest rate is now at 2.5 per cent, the highest level since 2008. The Bank hiked its benchmark rate by 100 basis points in July, and another outsized hike is expected next month.
Desjardins principal economist Marc Desormeaux said in a research note on Monday that he expects the average Canadian home sale price to continue to drop by nearly 25 per cent from the early 2022 peak by the end of next year.
"Though the pace of sales and price declines eased in July, the trend remains negative," he wrote.
"The July numbers also illustrate the severity of the ongoing correction and the Canadian economy's historic level of sensitivity to housing."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.