Canadian real estate markets booked another hot month, but it may have marked the top. At least for market momentum. BMO senior economist Robert Kavcic says April may have been the peak for market momentum. Various factors are coming to a head that will lighten some pressure on the gas.
Homes Sales Were Strong, Even By Historic Levels
There’s no way to see last month’s numbers as anything but very strong. BMO acknowledges Toronto home sales were “roughly 45% above ‘normal’ levels for that month.” They looked past the annual comparison, due to the skew of being the first lockdown month.
They also acknowledge price growth continued to accelerate. The benchmark price increased by 17.8% in April, compared to a year before. Price growth didn’t fall by much last year, so the annual comparison is still meaningful. Unlike sales, which suffered from an artificial constraint.
The bank also observed this trend extends to more than just Toronto. It’s a national thing. From what we’ve seen, it’s actually more difficult to find a market that isn’t hot these days.
“The point here is that, looking past some wonky comparisons, resale markets remain extremely strong by historical standards,” he said.
Canadian Real Estate Markets May Have Just Passed Peak Momentum
The market was on fire, but the economist has a few reasons to believe things will cool from here. Mortgage pre-approvals that were locked at record lows are rolling off. The BoC is trying to project hawkishness. He also sees people potentially starting to focus on post-pandemic life. Focusing on life outside of the house, may shift exuberance from being all-in on the house.
Mortgage pre-approvals are one point that hasn’t been brought up often. For those that don’t know, some lenders will pre-approve mortgages. This can often come with a “rate lock,” holding record-low mortgage rates. These pre-approvals typically last 60 to 120 days. As BMO points out, most of the pre-approvals issued at record low rates would be expiring by now. New pre-approvals would face higher mortgage rates. Not sky-high, but a little higher is enough to put a damper on things when you’re at record lows.
Even though it’s past peak, that doesn’t mean the market is going to completely fade right away. “Still, even if the rate of change chills out, it’s going to take more to seriously slow a market that remains extremely hot” he said.
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