Canadian housing markets have rapidly returned to more balanced conditions, favouring neither sellers nor buyers, as inventory levels rise and skyrocketing prices return to earth..“The inventory of unsold homes has risen to 3.4 months, seasonally adjusted, from an incredibly skinny 1.7 at the start of the year,” says Doug Porter, BMO chief economist. “That’s getting back close to the much calmer conditions prevailing just before the pandemic when they were a bit above four months’ supply.”.Buyers are taking their time getting back into the market as they enjoy the last weeks of summer and take a wait-and-see posture on the next move by the Bank of Canada..“A metric that’s a bit more concerning for the near-term outlook is the ratio of sales to new listings, which has plunged to just above the 50 level after holding well above a record high 75 for all of 2021,” says Porter. “In Ontario, that ratio has dropped to barely above 40, a level it has seen only once in the past 25 years, in the depths of the 2008/09 downturn.”.“Prices have started to drop in many Ontario cities in recent months, including the GTA, but they’re still up a tad from a year ago (and) this ratio says there is more weakness coming, and soon.”.Markets in Ontario and BC, which were at the apex of the home buying frenzy of the last two years, are cooling the most, says Robert Hogue, chief economist at RBC..“Formerly overheating markets in Ontario and parts of the BC Lower Mainland have been the epicentre of the downturn to date,” says Hogue, adding Cambridge (-17%), Kitchener-Waterloo (-16%), Brantford (-14%), London (-14%) and Guelph (-10%) have experienced the biggest declines in the composite MLS Home Price Index since the February peak. .“Prices are also under heavy pressure in the Greater Toronto Area where the composite MLS HPI is down 7% in the past five months.”.“The Fraser Valley is leading the correction in British Columbia with the composite benchmark price falling 5.6% since March, slightly more than twice the decline in the Vancouver area.”.Other areas of the country are seeing more moderate declines..“Markets outside Ontario and BC generally face a milder correction,” says Hogue. “As buyers in relatively affordable markets are less sensitive to interest rate hikes, we expect demand to be more resilient.” .“The fact that home resales have so far remained above pre-pandemic levels in the Prairie Provinces and most of Atlantic Canada is a case in point. While likely to soften modestly, demand-supply conditions are well anchored in balanced territory in these regions.”.“In Quebec, gradually moderating activity is now taking the edge off prices. The composite MLS HPI fell slightly in the past two months in both Montreal and Quebec City, suggesting peak prices are likely behind us.”.Hogue expects activity to cool further nationwide, as the Bank of Canada pushes interest rates higher..“The Bank of Canada’s outsized 100 basis-point rate hike delivered on July 13 threw ice-cold water on the market, disqualifying some buyers from obtaining a mortgage and shrinking the size of a mortgage others can qualify for,” he says. “Our expectation for an additional 100 basis-point rate increase over the next two rate announcements in September and October will no doubt keep chilling things.” .“We project home resales to fall 23% in Canada this year and a further 15% next year.”.Hogue says the number add up to six or seven months until they hit bottom..“We believe the market will adjust to higher interest rates by early 2023. Any recovery will likely take a few months to tighten demand-supply conditions, placing the bottom for prices around spring time overall for Canada,” he says. “We expect benchmark prices will be down approximately 12% from the recent peak nationwide.” .“On a provincial basis, we think Ontario and British Columbia could record peak-to-trough declines exceeding 14%, and see Alberta and Saskatchewan at the other end of the scale with drops of less than 3%.”.For those in a position to buy, it’s good news, says Hogue. .“With the balance of power having dramatically shifted in their favour, buyers will be in a position to continue extracting price concessions from sellers for some time to come.”
Canadian housing markets have rapidly returned to more balanced conditions, favouring neither sellers nor buyers, as inventory levels rise and skyrocketing prices return to earth..“The inventory of unsold homes has risen to 3.4 months, seasonally adjusted, from an incredibly skinny 1.7 at the start of the year,” says Doug Porter, BMO chief economist. “That’s getting back close to the much calmer conditions prevailing just before the pandemic when they were a bit above four months’ supply.”.Buyers are taking their time getting back into the market as they enjoy the last weeks of summer and take a wait-and-see posture on the next move by the Bank of Canada..“A metric that’s a bit more concerning for the near-term outlook is the ratio of sales to new listings, which has plunged to just above the 50 level after holding well above a record high 75 for all of 2021,” says Porter. “In Ontario, that ratio has dropped to barely above 40, a level it has seen only once in the past 25 years, in the depths of the 2008/09 downturn.”.“Prices have started to drop in many Ontario cities in recent months, including the GTA, but they’re still up a tad from a year ago (and) this ratio says there is more weakness coming, and soon.”.Markets in Ontario and BC, which were at the apex of the home buying frenzy of the last two years, are cooling the most, says Robert Hogue, chief economist at RBC..“Formerly overheating markets in Ontario and parts of the BC Lower Mainland have been the epicentre of the downturn to date,” says Hogue, adding Cambridge (-17%), Kitchener-Waterloo (-16%), Brantford (-14%), London (-14%) and Guelph (-10%) have experienced the biggest declines in the composite MLS Home Price Index since the February peak. .“Prices are also under heavy pressure in the Greater Toronto Area where the composite MLS HPI is down 7% in the past five months.”.“The Fraser Valley is leading the correction in British Columbia with the composite benchmark price falling 5.6% since March, slightly more than twice the decline in the Vancouver area.”.Other areas of the country are seeing more moderate declines..“Markets outside Ontario and BC generally face a milder correction,” says Hogue. “As buyers in relatively affordable markets are less sensitive to interest rate hikes, we expect demand to be more resilient.” .“The fact that home resales have so far remained above pre-pandemic levels in the Prairie Provinces and most of Atlantic Canada is a case in point. While likely to soften modestly, demand-supply conditions are well anchored in balanced territory in these regions.”.“In Quebec, gradually moderating activity is now taking the edge off prices. The composite MLS HPI fell slightly in the past two months in both Montreal and Quebec City, suggesting peak prices are likely behind us.”.Hogue expects activity to cool further nationwide, as the Bank of Canada pushes interest rates higher..“The Bank of Canada’s outsized 100 basis-point rate hike delivered on July 13 threw ice-cold water on the market, disqualifying some buyers from obtaining a mortgage and shrinking the size of a mortgage others can qualify for,” he says. “Our expectation for an additional 100 basis-point rate increase over the next two rate announcements in September and October will no doubt keep chilling things.” .“We project home resales to fall 23% in Canada this year and a further 15% next year.”.Hogue says the number add up to six or seven months until they hit bottom..“We believe the market will adjust to higher interest rates by early 2023. Any recovery will likely take a few months to tighten demand-supply conditions, placing the bottom for prices around spring time overall for Canada,” he says. “We expect benchmark prices will be down approximately 12% from the recent peak nationwide.” .“On a provincial basis, we think Ontario and British Columbia could record peak-to-trough declines exceeding 14%, and see Alberta and Saskatchewan at the other end of the scale with drops of less than 3%.”.For those in a position to buy, it’s good news, says Hogue. .“With the balance of power having dramatically shifted in their favour, buyers will be in a position to continue extracting price concessions from sellers for some time to come.”
