Canadian real estate always marches to the beat of its own drum, which may not be a good thing soon. BMO senior economist Robert Kavcic shared his take on last month’s home sale numbers. He observed a strong market, but said it continues to show we’re past peak momentum. He warns of a potential “bizzaro” scenario, where a better economy means a housing slowdown.
Canadian Homes Sales Are Cooling From Peak Demand
Two key real estate markets are showing slowing home sales, and have been for a few months now. June home sales in both Toronto (-7.1%) and Vancouver (-11.9%) fell from the month before. Both markets are near to entering balanced territory. Not exactly something many would have seen this quickly, just a few months ago.
“Home sales in Toronto and Vancouver continued to cool in June, but let’s keep in mind that we’re still ‘cooling’ from astronomical levels,” says Kavcic. “In both cities, sales activity remained above pre-COVID norms in the month.”
Toronto and Vancouver Home Prices Hit A Wall
Cooling home sales have yet to relieve pressure from prices, according to the bank. Annual price growth is soaring in Toronto (19.9%) and Vancouver (14.5%). “The overall market balance continues to support solid price gains,” said the economist.
Though annual gains were strong, it’s worth taking note of the monthly slowdown. Both Toronto and Vancouver are showing an unusual monthly drop in prices for the city. Suburban markets are still on a tear, but it feels like the market may be turning a corner.
Canadian Real Estate Is Past Peak Momentum
While the bank said the market is still strong, they did say the peak momentum for real estate is behind us. “Prices in some segments might be finding resistance,” he said. The detached market in the City of Toronto, and the City of Vancouver is likely what they are referencing.
The real estate market has been playing out in an unexpected scenario, which he calls a “bizarro cycle.” As the recession became worse, the market improved and prices picked up steam. Now that we can see the light at the end of the tunnel, the market is suddenly becoming softer.
If a slowdown materializes, the way cheap credit pulls forward demand will play a part in why. Falling mortgage rates allowed larger budgets, meaning people didn’t have to save quite as much. Buyers that might have been thinking of purchasing a couple of years later, might be able to purchase earlier.
More pressure on sales today, but that buyer is no longer buying in the future. The economy has already seen the benefit of that person’s buy into today’s window.
This leads to higher home prices in the near term. Rising prices, especially this fast, tend to apply fear to other buyers, who fear being locked out. This pushes prices even higher, producing that “shortage” you keep hearing about. As demand catches up, it brings relief to buying activity. This should ease pressure on prices.
Is that where the real estate market is heading? Given how much demand was seemingly pulled forward, that wouldn’t come as a surprise,” said Kavcic.
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