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Posthaste: Bottom still a ways off for Canada's housing market, says RBC

·4 min read
home-sales-0816
home-sales-0816

Good Morning!

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

Home sales dropped 5.3% in July, the fifth month in a row of declines. Benchmark prices were also down 1.7% from the month before.

Since March, when the Bank of Canada began hiking interest rates to battle decades-high inflation, home sales have fallen 31% and benchmark prices almost 6% nationwide, says RBC assistant chief economist Robert Hogue.

“And the bottom is likely many months away still as our central bank has more work to do,” Hogue wrote in a note yesterday.

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

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

Potential buyers are holding back in case prices drop further, while sellers are debating whether they too should wait until the market turns in their favour, Canadian Real Estate Association chair Jill Oudil said in a press release yesterday.

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

National says market conditions loosened in every province in July, with six out of 10 provinces now in balanced territory.

The fall in some of the more overheated markets in Ontario already has been staggering. Home prices are down $166,000 in Cambridge (-17%) and $95,000 in Guelph (-10%), while Kitchener-Waterloo has seen prices skid -16% and Brantford and London, -14% from their February peak, said Hogue.

In the Greater Toronto Area the composite MLS home price index has dropped 7% ($89,000) in the past five months.

In British Columbia, Fraser Valley is leading the correction, Hogue said, with benchmark prices falling 5.6% ($65,000) since March, more than twice the decline seen in Vancouver.

Hogue expects the correction to be milder in markets outside Ontario and British Columbia, but cracks are beginning to show.

In the past two months, the composite MLS home price index has fallen slightly in Montreal and Quebec City, suggesting that prices have peaked. Prices in Alberta, Manitoba and Nova Scotia have also been softening for the past few months.

“We think these provide growing evidence a generalized downturn is underway in Canada,” said Hogue.

Another 100 basis points in Bank of Canada hikes over September and October will further chill the market, leading to a 23% decline in home sales nationally this year and another 15% next year, RBC predicts.

So when will we hit bottom?

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

By that time prices nationally will be down about 12% from peak, RBC predicts. Ontario and British Columbia could see declines that exceed 14%, while Alberta and Saskatchewan prices may get away with dips of less than 3%.

 

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ATTENTION SHOPPERS Chaos and panic ensued at an Ikea in Shanghai recently when health authorities tried to impose “temporary control measures” at the store after they found out that a close contact of a 6-year-old boy with an asymptomatic COVID infection had been there. News of the flash shutdown sent shoppers fleeing and screaming in an effort to get out of the building before the doors were locked, videos on social media (above) showed. Those who didn’t make it out were sealed inside the store from 8 p.m. until just after midnight, when they were transferred to quarantine hotels. They would be required to do two days of quarantine and then five days of health surveillance. Photo from video on Twitter

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  • Helena Jaczek, minister responsible for FedDev Ontario, will make an announcement in support of Black entrepreneurs and Black-led businesses in Hamilton and Windsor

  • Anthony Rota, Liberal MP for Nipissing—Timiskaming, will make an announcement to support innovators, job creators and seniors

  • The Association of Municipalities of Ontario’s 2022 AMO conference

  • Today’s Data: Canadian housing starts, CPI and international securities transactions; U.S. building permits and housing starts

  • Earnings: Walmart, Home Depot

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Canada’s housing “correction is well on its way,” wrote BMO senior economist Robert Kavcic after data from the Canadian Real Estate Association for July came out 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 financial crisis in 2020,” said Kavcic.

 

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If you’re looking to invest in real estate you might 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.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:

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