Canada's housing market, once characterized by its strong growth, is currently encountering obstacles as a result of stricter borrowing conditions and soaring home prices. The latest data from the Canadian Real Estate Association (CREA) for August reveals a slowdown in sales activity and price increases. In this blog post, we will examine the impact of these factors on Canada's housing market and the implications for both buyers and sellers.
Decline in Sales Activity The CREA report indicates that 40,257 homes were sold in August, representing a 5.3% increase from the same period the previous year. While this may seem positive, it's essential to note that this growth rate is slower than the 8.7% annual increase observed in July, indicating a narrowing year-over-year gap. On a monthly basis, sales activity declined by -4.1%, signaling a notable slowdown.
Price Growth Stagnation The national average sale price is also displaying signs of stagnation, with a meager 2.1% increase compared to 2022, resulting in an average price of $650,140. This figure is significantly lower than the peak observed during the pandemic in February of that year when average home prices were $166,580 higher.
CREA's report highlights regional disparities in price trends. Quebec and the East Coast continue to experience robust price growth, followed by British Columbia and the Prairies. However, Ontario presents a mixed picture, with some areas witnessing substantial increases while others report declines.
MLS Home Price Index The MLS Home Price Index, which measures the value of the most common type of home sold, recorded only a modest 0.4% increase both month over month and year over year. This suggests that the market is not witnessing the rapid price appreciation seen in previous years.
Supply and Demand Dynamics In August, a total of 65,831 homes were listed for sale, a figure that remained relatively unchanged (0.8%) compared to July. Nevertheless, this indicates a gradual return to more typical supply levels, which could alleviate conditions for buyers. The months of inventory, reflecting the time required to sell all properties under current market conditions, stood at 3.4. Although still below the long-term average of five months, this represents a slight increase from the 3.2 recorded in July and 3.1 in May and June. The sales-to-new listings ratio, a crucial metric, declined to 56.2% in August, down from July and the peak of 67.4% observed in April. However, it has now returned to its long-term average of 55.2%, indicating a more balanced market.
Impact of the Bank of Canada Rate Hike
CREA Senior Economist Shaun Cathcart attributes the decrease in demand to the Bank of Canada's decision to raise its benchmark rate to 5% in July. This move led to Canada's prime rate reaching 7.2%, resulting in higher variable mortgage rates across the board. Cathcart remarks, "The demand is still present and will eventually rebound. However, as the housing affordability crisis re-emerges as a top policy concern, the current slowdown on the buyer side may help mitigate price increases."
Looking Ahead
As we enter the fall season, an improved selection of homes for sale is expected to further ease conditions for buyers. The housing market appears to be gradually finding equilibrium between supply and demand, potentially paving the way for more stable and sustainable growth in the future.
In conclusion, although the housing market sees a slowdown in August, it's navigating a period of adjustment as borrowing conditions tighten and prices stabilize. While challenges persist, there is optimism that a more balanced market will offer opportunities for both buyers and sellers in the coming months. Stay tuned for updates on this evolving situation.
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