Canadian Real Estate Cooldown Is Just Getting Started: BMO

Canadian real estate has another indicator showing higher rates are tempering the market. A new analysis from BMO Capital Markets shows housing-related retail sales fell in April. They attribute this to  higher rates, and see this as a direct follow up to falling real estate sales. Activity remains elevated but BMO sees things slowing further as rates climb.

Canadians Are Spending Less On Home Building and Renovation Materials

Higher interest rates aren’t only slowing real estate sales, but related spending too. April retail sales showed a drop of 4.3% for the “building materials, garden equipment, and supplies segment.” It was the first decline since last summer, though it’s still elevated compared to typical levels.

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🇨🇦’s real estate chill is now extending to renovation spending, and things are just getting started says BMO. #realestate #canada #canadianrealestate #fintok #realestateinvesting #toronto #vancouver #finance

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“As the chart shows, sales in this category still have a long way to go from still-elevated levels—juiced by demand for housing and renovations during the pandemic,” said Shelly Kaushik, an economist with the bank. 

“Still, it looks like a more aggressive tightening path by the Bank in April cooled some of that demand as sales of building materials fell for the first time this year.”

Falling home prices may also be a large contributor to this cooling trend. In addition to fewer flippers, a large share of home improvements are funded by home equity.

At the start of 2020, over a third (35%) of homeowners looking to renovate said they planned to tap their HELOC to pay for it. An additional 23% planned to refinance their home to fund their renovation. Soaring home prices provided more renovation funds to play with and falling home prices may remove some of those funds.

Canadian Real Estate To Slow Further, Warns Bank

The slowdown from higher interest rates is far from over, with more rate hikes expected. “Looking ahead, another drop in home sales in May and the potential for even more aggressiveness from the BoC should cool the housing market further in the coming months,” said Kaushik. 

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  • V 2 months ago

    But Al Sinclair said prices will keep going up!
    What the hell!

    • Trader Jim 2 months ago

      Realtor on TikTok said prices have peaked so they’ll “just” rise 10% more this year. We’ve gone so bubbly, we think 3x the normal growth is the same as not moving.

      • questions guy 2 months ago

        how does one ‘peak’ and keep rising?

        LIKE WTF IS WRONG WITH THESE PEOPLE!

  • Doomcouver 2 months ago

    Cresting right over the top of that parabola. Base case is a further 0.75 hike from the BoC July 13, could even be a full point. Get prepared for Tiff Macklem to break something major in the Canadian economy really soon, because that’s the only way that inflation is going to come down.

  • Omar 2 months ago

    Good lord, look at that stimulus. Go out and buy shit to build a home, we need you to! Immediately after warning in 2019 to literally stop using your home equity to inflate home prices.

  • DWAYNE NEWMAN 2 months ago

    As interest rates creep up I would now expect a slow spiral down in prices. However as it crashes it will wipeout many in the industry. But the entire real-estate and housing market may take 15 years to recover once the real drops in Prices finishes, and it will very likely not look the same for a number of reason that include new technology (3D homes), and the loss of many types of buyers. Once we start to Subtract Foreign buyers, pandemic re-locators, flippers and the fact that there are currently more real state agents in Ontario than teachers and those agents losing their jobs, and the knock on effects …. then we will see the value of our real-estate, it could go down by 70%. YEAH so splash some cold water on your face! Also No one is smart enough (yet) in the real-estate sector to calculate the cost savings and potential building revolution that technologies will bring us, 3D printed homes that will be common place in the coming years, which cost as little as 25% of a traditional home to build new, and last 300 years.

  • Jason Azevedo 2 months ago

    Don’t worry guys this time is different. Even though there is a major crash every 20 to 30 years and we are due for another big one it simply won’t happen because my emotions said so.

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