RACHELLE YOUNGLAI – REAL ESTATE REPORTER
PUBLISHED JULY 15, 2022
Canada’s housing market slowed for the third straight month in June, with home prices cratering – the largest monthly decline on record – as borrowing costs soar and buyers struggle to qualify for a mortgage.
The national home price index, which adjusts for pricing volatility, dropped 1.9 per cent to $807,400 on a seasonally adjusted basis, according to the Canadian Real Estate Association (CREA). It follows the April-to-May decline of 0.8 per cent and the March-to-April drop of 0.6 per cent.
Home prices tumbled across the country, especially in the B.C. Interior and throughout Ontario, including cottage country and smaller cities, where property values had almost doubled over the first two years of the pandemic. In Ontario, the home price index for the Kawartha Lakes region fell almost 11 per cent from May to June, while Woodstock-Ingersoll, Simcoe and London each lost more than 5 per cent over the same period.
From peak prices in March, the national home price index is down 3.3 per cent. But unadjusted numbers show even greater declines. In Toronto, the country’s largest real estate market, the index fell almost 10 per cent over three months.
CREA senior economist Shaun Cathcart said he was not surprised to see property values drop by this magnitude given that they are up 50 per cent since the beginning of the pandemic. “To give back 3.3 per cent since March is still pretty small potatoes,” he said.
The number of home resales fell 5.6 per cent from May to June on a seasonally adjusted basis. Activity was down in three-quarters of the country, with the largest declines in the major urban centres of Toronto, Vancouver, Calgary, Edmonton and Ottawa. Resales also dropped significantly in Toronto suburbs such as Burlington and the nearby city of Hamilton.
The country’s housing market started slowing after the Bank of Canada embarked on mission to hike interest rates to tamp down inflation. Last month’s housing activity does not reflect the central bank’s July hike of one percentage point. The benchmark interest rate is now 2.5 per cent, up from 0.25 per cent in early March. That has increased interest payments for variable-rate mortgage holders and has made it harder for would-be buyers to qualify for a mortgage.
Under federal banking rules, borrowers must prove they can make their monthly mortgage payments at an interest rate that is at least two percentage points higher than that of their actual loan contract; for instance, with a five-year fixed rate of almost 5 per cent, a borrower would have to show they can make their payments with an interest rate of almost 7 per cent.
This has made it particularly difficult for first-time homebuyers, especially those in expensive markets such as most of Southern Ontario and B.C.
Kristina Legault, a realtor with Century 21 Creekside Realty, which serves the Chilliwack area in B.C., said some buyers simply cannot get financing now. “The interest rate really has an effect on them,” she said.
But it’s not just interest rates making housing increasingly unaffordable for Canadian residents. Ms. Legault said the higher costs of goods and services are giving homebuyers pause.
Properties are taking longer to sell, even as more people are putting their homes up for sale. The number of new listings across the country increased 4.1 per cent from May to June. Phil Soper, the president of Royal LePage, said he will be watching the pace of new listings; if it spikes relative to weakening demand, it will lead to a drop in prices, he said.
Compared with June of last year, the home price index is still 15-per-cent higher. Private-sector economists predict prices will fall as much as 20 per cent from the record highs of the first quarter by early next year.
However, many economists believe the country’s robust jobs market and the steady flow of immigrants will sustain demand for housing and prevent prices from plunging. Farah Omran, an economist with Bank of Nova Scotia, said that would “set a floor” on home prices in the longer term.