In March, before rapidly rising interest rates took hold of housing markets, the Canadian Real Estate Association (CREA) was forecasting sales would reach 612,800 homes by the end of 2022, an 8.1% decline from the all-time high reached in 2021..At the time, CREA also forecast the national average price to rise by 14.3% this year to $786,000..That was then; this is now..“With interest rates on the rise, and with five-year fixed rates getting well out ahead of what the Bank of Canada is expected to do later this year, home sales have cooled sharply in recent months,” says Jill Oudil, chair of CREA..“Prices have also been halted in their tracks following a record setting five months of growth between October 2021 and February 2022.”.Subsequently, CREA revised its forecast for sales to 568,288 homes in 2022, a decline of 14.7% from the 2021 record but still the second-highest annual figure ever. .Only Alberta and Newfoundland and Labrador are forecast to buck the trend of falling sales in 2022..CREA’S revised forecast is for the national price to reach $762,386, up 10.8% from 2021..Looking further ahead, CREA forecasts sales to decrease 2.8% to 552,403 units in 2023, with the national average home price to rise by a more modest increase of 3.1% to $786,282 next year..“August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” says Oudil. “That said, some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing.”.“Home sales edged down a slight 1% between July and August 2022, the sixth consecutive month-over-month decline but the smallest of the six as the national sales slowdown triggered by rising interest rates continues to moderate..The national average home price was $637,673 in August, a drop of 3.9% from August last year. When Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive housing markets are excluded from the calculation, the average price is $522,873.. VancouverVancouver .Sales in August were down 24.7% year-over-year, compared to a year-over-year drop of 29.4% in July..“It was close to an even split between the number of markets where sales were up and those where sales were down,” says Oudil..“Gains were led by the Greater Toronto Area and a large regional mix of other Ontario markets. These were offset by declines in Greater Vancouver, Calgary, Edmonton, Winnipeg, and Halifax-Dartmouth.”.An important chapter of the housing market story is the impact discounted five-year fixed mortgage interest rate levels have had on the stress test, which buyers must pass before qualifying for a mortgage. .In April, discounted five-year fixed rates increased from the low 3% range to the low 4% range. The stress test is the higher of 5.25% or the contract rate plus 2%. For fixed rate borrowers, qualifying for the stress test has moved from 5.25% to the low 6% range. Variable rates will now be playing catch-up over the balance of 2022..“The stress test was unpopular with some when it was introduced. But as we have all now watched the Bank of Canada raise its key interest rate by 300 basis points in the space of five months, it’s clear many Canadians were protected by it,” says Shaun Cathcart, CREA’s senior economist. “But should there not be a flipside to the coin? The overnight rate is now officially above the Bank of Canada’s neutral range and not expected to go too much higher.”.“This is not about looser or tighter, it is about what is appropriate given where rates are and where they're likely to go moving forward. The Office of the Superintendent of Financial Institutions (OSFI) is likely thinking hard about what makes sense given the new realities and how to balance the community of interests they are tasked with securing.”.John DiMichele, CEO of the Toronto Region Real Estate Board, says the stress test should be flexible.. TorontoToronto ."Is it reasonable to test home buyers at two percentage points above the current elevated rates, or should a more flexible test be applied that follows the interest rate cycle?” says DiMichele. .“In addition, OSFI should consider removing the stress test for existing mortgage holders who want to shop for the best possible rate at renewal rather than forcing them to stay with their existing lender to avoid the stress test. This is especially the case when no additional funds are being requested.”
In March, before rapidly rising interest rates took hold of housing markets, the Canadian Real Estate Association (CREA) was forecasting sales would reach 612,800 homes by the end of 2022, an 8.1% decline from the all-time high reached in 2021..At the time, CREA also forecast the national average price to rise by 14.3% this year to $786,000..That was then; this is now..“With interest rates on the rise, and with five-year fixed rates getting well out ahead of what the Bank of Canada is expected to do later this year, home sales have cooled sharply in recent months,” says Jill Oudil, chair of CREA..“Prices have also been halted in their tracks following a record setting five months of growth between October 2021 and February 2022.”.Subsequently, CREA revised its forecast for sales to 568,288 homes in 2022, a decline of 14.7% from the 2021 record but still the second-highest annual figure ever. .Only Alberta and Newfoundland and Labrador are forecast to buck the trend of falling sales in 2022..CREA’S revised forecast is for the national price to reach $762,386, up 10.8% from 2021..Looking further ahead, CREA forecasts sales to decrease 2.8% to 552,403 units in 2023, with the national average home price to rise by a more modest increase of 3.1% to $786,282 next year..“August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” says Oudil. “That said, some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing.”.“Home sales edged down a slight 1% between July and August 2022, the sixth consecutive month-over-month decline but the smallest of the six as the national sales slowdown triggered by rising interest rates continues to moderate..The national average home price was $637,673 in August, a drop of 3.9% from August last year. When Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive housing markets are excluded from the calculation, the average price is $522,873.. VancouverVancouver .Sales in August were down 24.7% year-over-year, compared to a year-over-year drop of 29.4% in July..“It was close to an even split between the number of markets where sales were up and those where sales were down,” says Oudil..“Gains were led by the Greater Toronto Area and a large regional mix of other Ontario markets. These were offset by declines in Greater Vancouver, Calgary, Edmonton, Winnipeg, and Halifax-Dartmouth.”.An important chapter of the housing market story is the impact discounted five-year fixed mortgage interest rate levels have had on the stress test, which buyers must pass before qualifying for a mortgage. .In April, discounted five-year fixed rates increased from the low 3% range to the low 4% range. The stress test is the higher of 5.25% or the contract rate plus 2%. For fixed rate borrowers, qualifying for the stress test has moved from 5.25% to the low 6% range. Variable rates will now be playing catch-up over the balance of 2022..“The stress test was unpopular with some when it was introduced. But as we have all now watched the Bank of Canada raise its key interest rate by 300 basis points in the space of five months, it’s clear many Canadians were protected by it,” says Shaun Cathcart, CREA’s senior economist. “But should there not be a flipside to the coin? The overnight rate is now officially above the Bank of Canada’s neutral range and not expected to go too much higher.”.“This is not about looser or tighter, it is about what is appropriate given where rates are and where they're likely to go moving forward. The Office of the Superintendent of Financial Institutions (OSFI) is likely thinking hard about what makes sense given the new realities and how to balance the community of interests they are tasked with securing.”.John DiMichele, CEO of the Toronto Region Real Estate Board, says the stress test should be flexible.. TorontoToronto ."Is it reasonable to test home buyers at two percentage points above the current elevated rates, or should a more flexible test be applied that follows the interest rate cycle?” says DiMichele. .“In addition, OSFI should consider removing the stress test for existing mortgage holders who want to shop for the best possible rate at renewal rather than forcing them to stay with their existing lender to avoid the stress test. This is especially the case when no additional funds are being requested.”
