Interest rates in July took another huge toll, causing Canada’s housing correction to run far and wide. Housing markets across the country have seen a deepened downturn. This is quickly turning into the sharpest drop in the past 5 decades.
With prices sliding fast, fear is fast replacing the exuberance many of us felt earlier this year, especially in Vancouver and Toronto. These cities saw outsize price gains and stretched affordability during the pandemic, and as such are at the highest risk.
The Toronto pullback is already obvious, with the frenzy of last winter already gone. Housing activity is currently at its slowest pace in 13 years, except for April 2020 when we first had to live through lockdowns.
Inventories that were previously rock-bottom have now risen to a year over year high of 58%. Since March of 2022, the composite MLS Home Price Index for Toronto has fallen by 13% to $1,160,000.
It is expected that buyers will be on the defensive in the months to come. This, as they have rising interest rates and poor affordability to deal with. They may be able to get further price concessions, especially for properties in the 905 built, where prices had increased exponentially during the pandemic. In the city of Toronto, condos have continued to remain relatively resilient.
Vancouver’s housing market has been repeatedly cooled off since this spring, with rising interest rates. This has caused a drop in activity of 40% in the last 4 months. Prices have started to weaken, and the composite MLS HPI has seen a decrease of 4.5% since April.
The Royal Bank of Canada believes that the city’s correction is still at early beginnings, and that buyers in the region will have to face pressure with rising rates as expected affordability starts to become suffocating. Single-detached homes will feel most of the pain, while condos will remain resilient.
What is Happening Outside of Vancouver?
Some buyers have seen a great reduction in their buying power, and this has caused many of them to back out of the market, or out of their house search. This downturn may be contained in just some parts of the country, but we cannot ignore it.
In Calgary, for example, we have seen activity that is still above the pre-pandemic levels, but with property values now starting to ease, buyers may be able to get into the market there. With the higher interest rates, buyers have changed some of their needs or have decided to renege some of their wants. They are looking for more affordable options, like single detached homes and condos, etc.
Sellers are hesitating too, and so supply is also dwindling. The composite MLS HPI for Calgary has dipped since its peak in May. The same course of action is expected in the near future with the RBC. Tight demand and supply will help to support prices offering positive demographic and economic fundamentals.
Montreal is seeing activity moderated, with home sales standing at 17% below the pre-pandemic levels. Rising inventories and calmer environments have brought around some amount of balance in the market.
Single family condos and homes have seen a fall in median prices month over month. Property values are expected to ease in the close future. The market will adjust to higher interest rates. The downturn is expected to intensify and spread further. Buyers are waiting to see what will happen with lending rates.