Home sales slowed in August and prices fell on a monthly basis, the latest drop in the wake of rising interest rates, prompting the Canadian Real Estate Association (CREA) to revise down its home price forecasts.
CREA said on Thursday it expects 532,545 properties to trade hands this year, down 20% from the 2021 record, and deeper than its previous estimate of an annual drop of 14. .7%. CREA also expects home prices to rise 4.7% annually to $720,255, a figure the real estate group says reflects high prices at the start of the year. He previously expected a price increase of 10.8%.
The Canadian housing market has been in a period of decline since the Bank of Canada began aggressively tightening monetary policy in March and rapidly raising its benchmark interest rate. The the central bank recently raised its key rate by 75 basis pointsbringing it to 3.25%, the highest level since April 2008.
However, the slowdown moderated in August. National home sales fell 24.7% on an annual basis last month, slightly less than the 29.4% annual decline recorded in July. Sales fell 1% from July, marking the sixth straight month of decline, but August’s decline was the smallest of the past five declines.
CREA says the drop in sales was driven by declines in Greater Vancouver, Calgary, Edmonton, Winnipeg and Halifax-Dartmouth, offsetting gains in the Greater Toronto Area (GTA) and other Ontario markets.
House prices also fell on a monthly basis. The MLS home price index, which CREA says is a more accurate price comparison than the median or average price, fell 1.6% from July, with the benchmark price dropping to 777,200 $. However, on an annual basis, the index is up 7.1% from 2021, the first single-digit increase in nearly two years.
AIT President Jill Oudil said the smaller drop in sales in August, along with stabilizing supply and demand conditions in several markets, “could be a harbinger that the sharp adjustment in this year’s housing markets across Canada has pretty much run its course.”
“That said, some buyers may choose to sit on the sidelines until they see clearer signs of borrowing costs and price stabilization,” Oudil said in a press release.
But some economists expect further declines in the Canadian housing market as the Bank of Canada signals that it will continue to aggressively raise interest rates. The central bank said in its interest rate decision last week that “the key interest rate will have to rise further.”
“The big picture is that there remains an extremely large interest rate shock to absorb, and it will likely take longer to materialize,” wrote BMO Capital Markets Senior Economist Robert Kavcic. in a research note Thursday.
“With at least another 50 basis points (rise) coming in the short term, there’s probably more repricing to do.”
Desjardins’ senior director of Canadian economics, Randall Bartlett, said while the slowing declines provide any optimism, “we should curb our enthusiasm”, noting that much of the sales increases were concentrated in the TMN.
“We believe this is more likely a dead cat bounce than a Canadian housing market bounce,” he wrote in a research note.
“With rates continuing to rise since August and further hikes likely in the hopper given recent data, this will continue to cause residential investment to contract and weigh on the Canadian economy. opinion that this is likely to push the Canadian economy into a recession in the first half of 2023.”
Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.