The latest numbers on Canada’s housing market caused a bit of a stir when they came out last week.
“Has the Canadian real estate market adjusted to the higher cost of borrowing?” asked a headline from online realtor Zoocasa.
Home sales rose 1.3 per cent in October from the month before, the first monthly gain since February. About 60 per cent of Canadian housing markets saw an increase, and new listings rose for the first time in four months, a possible sign, says Zoocasa, that buyers and sellers are sick of sitting on the sidelines and ready to get back in the market.
“In October, sales across the country increased for the first time since before interest rates started to rise last winter,” said Jill Oudil, chair of the Canadian Real Estate Association when the numbers were released. “Of course, we’ve known the demand was there, so it’s just been a matter of some playing the waiting game as borrowing costs and prices have adjusted.”
While one month does not make a trend, economists also saw green shoots in the data.
October’s monthly home sales gain potentially signals that the market is nearing a bottom after falling 36 per cent over the past seven months, wrote RBC economist Robert Hogue in a note.
“Canada’s housing market may be entering the latter stages of its cyclical downturn.”
Leading the way in gains for the country was Victoria, where sales rose almost 20 per cent from the month before in October. Sales in Vancouver, Edmonton, Saskatoon, Winnipeg, Hamilton, Saint John and Halifax also rose by single-digit percentages. Toronto and Calgary were pretty much flat, while sales fell in Ottawa by 2.9 per cent, Montreal, by 2.4 per cent and Quebec City, 1.6 per cent.
In almost every market, sales remained below year-ago levels.
“The October housing data leaves us cautiously optimistic that the worst may be behind us, but the correction still has a way to go,” wrote Desjardins’ senior director of Canadian economics Randall Bartlett in a note.
Scotiabank economist Farah Omran said it will be interesting to see if the recent rise in sales triggers a return of buyers to the market, the same way the previous declines kept them away. “If those buyers interpret October’s results as the dip, then this could mark the beginning of the end of the housing market correction,” she said.
The turning point for falling prices, however, will lag sales, she said.
Property values did continue to fall, but last month’s drop was the smallest since May, said RBC’s Hogue. The aggregate MLS Home Price Index was down 1.2 per cent from the month before and 0.8 per cent from a year ago, the first yearly decline in three years. The index is now down 10 per cent from its February peak.
“While we continue to think an inflection point is some ways off, it does suggest most of the price correction is likely behind us — at least for Canada as a whole,” Hogue said.
Prices in Ontario and British Columbia, which saw the biggest increases during the pandemic boom, continue to see the biggest declines. The largest drops in the MLS home price index in Ontario were in Cambridge, down 22 per cent, London, 18 per cent, Brantford, 18 per cent, Kitchener-Waterloo, 17 per cent, Kawartha Lakes, 17 per cent, and Hamilton-Burlington, 17 per cent. In British Columbia, the biggest decliners were Chilliwack, down 18 per cent and Fraser Valley, down 12 per cent.
Even if the correction is in its late stages, that doesn’t mean the action is going to heat up again right away, cautioned Hogue — not with interest rates remaining high and about to get higher.
“This will keep activity quiet for a while longer even if it stabilizes near current levels. We think benchmark prices will keep trending lower until spring,” he said.
Capital Economics says the signs are encouraging but its economists believe it’s too early to sound the all-clear. The housing market has had to contend with higher interest rates, but Capital expects it will soon have to deal with higher unemployment as well.
It is still standing by its forecast of a 20 per cent decline in home prices from peak to trough, but acknowledges the risks to that have grown.
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North America has been pulling ahead in the race toward lower inflation, as today’s chart shows, with Canada’s headline rate holding steady at 6.9 per cent in October and America’s coming in lower at 7.7 per cent.
But in other areas of the world inflation keeps climbing, writes BMO chief economist Douglas Porter. Britain’s CPI in October crested 11 per cent and in Europe at least five economies are higher than that, with the Netherlands hitting a scorching 16.8 per cent. On the global scale, as BMO’s chart shows, Canada is in the lower end, with only Switzerland and Japan, traditionally low-inflation economies, and the special case of China and its COVID lockdowns, below it.
Porter, however, cautions that though headline inflation will moderate significantly over the next year, underlying inflation will stick around longer than many expect. “We simply are not as convinced that the pullback will be as dramatic as is commonly believed at this point, and will continue to warn about upside risks to the inflation outlook,” he said.
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