Canada's Housing Market Takes a Breather: Sales and Prices Cool Amidst Rate Hikes

Canada's housing market is experiencing a notable deceleration, with both home sales and prices showing a distinct cooling trend in July. The primary culprit? A series of aggressive interest rate hikes from the Bank of Canada, which are increasingly impacting affordability and buyer enthusiasm across the nation.

National home sales saw a slight dip of 0.7 per cent from June to July, marking a pause in the market's earlier momentum.

Simultaneously, the average home price across the country also receded, falling by 1.6 per cent month-over-month. This data confirms that the robust recovery observed in the spring months has hit a speed bump, as the market adjusts to the new economic reality of higher borrowing costs.

While a year-over-year comparison might show a significant surge in sales—a substantial 8.7 per cent increase from July 2022—it's crucial to remember that last summer represented a near-decade low for the market.

When viewed against the pre-pandemic 10-year average for July, sales remain muted, sitting approximately 12 per cent below that benchmark. This nuanced perspective highlights that while the market is off its absolute bottom, it's far from the frenzied pace of recent years.

The Canadian Real Estate Association (CREA) noted that sales were down in about two-thirds of all local markets, a clear indicator of widespread cooling.

The aggregate Composite Home Price Index (HPI), which adjusts for variations in housing types, saw a marginal monthly increase of 0.6 per cent. However, this figure is a significant slowdown from the robust gains of the preceding months, illustrating that price growth is now largely stagnant or in decline.

The Bank of Canada's persistent battle against inflation, primarily through raising its benchmark interest rate, has directly translated into higher mortgage rates for consumers.

This has squeezed purchasing power and compelled many potential buyers to either delay their homeownership plans or scale back their budgets. As a result, the upward trajectory of prices observed earlier in the year has largely been reversed.

Economists are now offering varied, yet generally cautious, outlooks.

RBC economist Robert Hogue anticipates that this latest dip signals further price declines in the coming months. Conversely, Desjardins principal economist Marc Desormeaux suggests that the relatively modest monthly price decline points to a market that is more stabilizing than crashing, with prices merely retreating from unsustainable spring peaks rather than entering a freefall.

He highlights that markets like Calgary have shown remarkable resilience, defying the broader national trend.

New listings are also playing a role in the evolving market dynamics. They climbed by 5.6 per cent in July from June, yet the overall inventory of homes for sale remains significantly below long-term averages.

This suggests that while more homes are coming onto the market, the supply-demand balance still favors sellers, preventing a steeper price correction in many areas. However, this could change if higher rates persist and more sellers decide to list their properties.

Regionally, the cooling trend is particularly evident in major urban centers that had previously seen explosive growth.

Toronto and Vancouver, for instance, experienced monthly declines in their average prices. Meanwhile, markets like Calgary continue to defy the trend, experiencing sustained demand and price appreciation, reflecting diverse regional economic conditions and migration patterns. As the Bank of Canada signals its readiness to potentially raise rates further, the Canadian housing market appears to be bracing for continued adjustments and a period of recalibration.