Canada’s housing market slowed for a third straight month in June, with home prices cratering – the biggest monthly decline on record – as borrowing costs soared and buyers struggled to qualify for a mortgage. The national home price index, which adjusts for price volatility, fell 1.9 per cent to $807,400 on a seasonally adjusted basis, according to the Canadian Real Estate Association (CREA). It follows a 0.8% decline from April to May and a 0.6% decline from March to April. Home prices fell across the country, especially in the interior of B.C. and across Ontario, including rural homes and smaller towns, where property values had nearly doubled in the first two years of the pandemic. In Ontario, the home price index for the Kawartha Lakes region fell nearly 11 percent from May to June, while Woodstock-Ingersoll, Simcoe and London each lost more than 5 percent over the same period. From peak prices in March, the national home price index fell 3.3%. But the unadjusted numbers are down even more. In Toronto, the country’s largest real estate market, the index fell nearly 10 percent in three months. CREA senior economist Shaun Cathcart said he was not surprised to see property values fall by this much given they have risen by 50% since the start of the pandemic. “Giving back 3.3 percent since March is still very small potatoes,” he said. The number of home resales fell 5.6% from May to June on a seasonally adjusted basis. Activity fell in three-quarters of the country, with the largest declines in the major urban centers of Toronto, Vancouver, Calgary, Edmonton and Ottawa. Resales also fell significantly in Toronto suburbs such as Burlington and the nearby city of Hamilton. The country’s housing market began to slow after the Bank of Canada embarked on a mission to raise interest rates to reduce inflation. Last month’s housing activity did not reflect the central bank’s one percentage point increase in July. The benchmark rate is now 2.5 percent, up from 0.25 percent in early March. This has increased interest payments for variable rate mortgage holders and 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 at least two percentage points higher than their actual loan agreement. For example, with a five-year fixed rate of nearly 5 percent, a borrower would need to show they can make their payments at an interest rate of nearly 7 percent. This has made it especially difficult for first-time home buyers, especially those in expensive markets like most of Southern Ontario and B.C. Kristina Legault, a broker with Century 21 Creekside Realty, which serves the Chilliwack area in BC, said some buyers just can’t get financing now. “The interest rate really has an effect on them,” he said. But it’s not just interest rates that are making housing increasingly unaffordable for Canadian residents. Ms. Legault said the higher cost of goods and services is putting homebuyers on hold. Real estate is taking longer to sell even though more people are putting their homes up for sale. The number of new listings nationwide rose 4.1 percent from May to June. Phil Soper, president of Royal LePage, said he will monitor the pace of new listings. If it spikes in relation to weakening demand, it will lead to lower prices, he said. Compared to June last year, the house price index is still 15 percent higher. Private sector economists predict prices will fall as much as 20% from record highs in the first quarter by early next year. However, many economists believe the country’s strong labor market and steady flow of immigrants will maintain demand for housing and prevent prices from falling. Farah Omran, an economist at the Bank of Nova Scotia, said this would “put a floor” on home prices over the long term. Your time is valuable. Deliver the Top Business Headlines newsletter to your inbox morning or night. Sign up today.
