Canadian real estate prices have been spiraling lower, but is a change in trend around the corner? Data from the Canadian Real Estate Association (CREA) shows that the price of a typical home increased in February. The national composite’s benchmark price had not moved higher since rate hikes began nearly a year ago. One increase is not a trend, but it can be a sign that buyers see the end of monetary policy’s influence on prices.
Canadian Real Estate Prices Climbed $7,000 In February
Canadian real estate prices changed course last month, recording the first increase in nearly a year. The composite benchmark rose 1.0% (+$7,100) to $715,400 in February. Despite the gain, prices remain 15.8% (-$133,900) lower than the same month last year. Home prices haven’t seen an increase in 11 months, which is sure to catch anyone’s eye that notices the shift.
Canadian Real Estate Prices
The price of a typical home across Canada, in Canadian dollars.
Source: CREA; Better Dwelling.
Annual Growth Shows The Largest 12-Month Contraction On Record
Watchers of the annual growth rate likely missed the move due to a base-effect skew. February’s 12-month change for the benchmark was 3 points lower than the month before. Despite prices rising in the month, it failed to keep up with the monster move from the previous year. This produced the largest drop for the annual growth rate ever recorded, even with rising prices.
Canadian Real Estate Price Growth
The 12-month change in Canada’s benchmark home price.
Source: CREA; Better Dwelling.
A typical home sold at the March 2022 peak is down 16.9% (-$145,600) as of February. February’s $7,100 climb helped to reduce the total loss, marking an end to the record decline for now. It is important to remember that one month does not make a trend, and prices do not move in a straight line. However, a break in the trend should be of interest to buyers on the sidelines.
Shifting Buyer Mentality, Not Inventory Is Driving This Trend
There must be a shortage of inventory? Not exactly, conditions were loosened last month. The Sales to New Listings Ratio (SNLR), which is the industry’s preferred measure of inventory absorption, fell to 56.7% in February, one point lower than January and 20 points lower than last year. This ratio is firmly within a “balanced” market range, meaning it is priced correctly for the level of demand. Essentially, sales fell a lot faster than inventory, helping to relieve pressure.
If it’s not tighter inventory, what’s pushing prices higher? As mentioned with Toronto’s recent numbers, a change in sentiment is the driver. The Bank of Canada (BoC) rate “pause” in January was read as the peak for interest rates. It was reinforced by the Governor partially attributing the pause to high household debt, which doesn’t just disappear immediately. By revealing they’re in a pinch, the market read that as the inability to keep up.
The current bank run crisis in the US is likely to only reinforce this sentiment. Though the risk of low rates sparking demand and thus inflation, also remains a risk in the other direction. No one planned on double digit inflation during the early 80s, it was sparked in part by the premature easing of policy.
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What Is a Bull Trap?
Bull trap = when the market looks like it’s going to go up (people buy in at that point) and then the market falls again, even farther than before. You can only tell if something is a bull trap in hindsight.
Possibly – the start of the dead cat bounce (Just a theory).
Bull Trap is just another word for Bull Crap!
The bond market is already pricing in a 100bps cut by year end now after the last week.
Let’s get this straight.
A mediocre house cost on average 1 mill.
20% down leaves 800k for finance.
5% rate makes payment of $4700/m
Now add taxes $500 or more plus utilities.
Who’s affording these homes and how much can investors rent them out for. Who can afford the rent
Exactly my thoughts Ray. Who in the world is buying these overpriced properties??? Even a house in the middle of nowhere, more like a cottage anywhere 200 km out of the GTA, easily lists for over $800,000 and some dumba$$ always buys it!!! Prices have not come down. It is just an optical illusion. Homes list well above what they expect to sell for, knowingly, and make the buyers feel like they are getting a deal by reducing the listing price to somewhere between last year’s price and the currently hyperinflated prices. Prices keep going up… just more crappy, shoddy homes selling for higher prices bringing the mean up… take a look at what you can buy for the average purchase price now and compare it with what you could purchase for that price a year ago…
Please raise interest rates and crash this hyperinflated RE market. Pop the balloon for once and for all!
It’s all the money laundering allowed into Canada now that’s still buying them. Canada has the weakest money laundering rules in the world. The US protects itself and has strict punishment but Canadian government enjoys the criminal/dirty cash coming into our country to keep the housing market going while average Canadians can’t afford a home and even a lot of investors will struggle now.
And yet nobody asks these obvious questions in major media like CBC/CTV/Global.
Where’s the like button for this app?!?
So many financially illiterate buyers out there that can’t understand we don’t need double digit rates of 1980s-90s to crash this RE market.
They can’t even fathom minor interest rate hikes like every 100bps hike equals to 11% increase in payment.
Fixed rates renewals from 2018-2019 will see 200+bps increases = 22+% higher payment
Canada is back!!
Well Ray, Where I live in Downtown Niagara Falls a slumlord buys a big old house for 700k, does under-the-table renovations resulting in ten or twelve cell-sized rooms from basement to attic then shoehorns as many South Asian students into it as he possibly can, at 600 bucks a pop. Then they all park on the front lawn and all the way down the street, and everyone lives happily ever after, unless any of the illegal Air BNB absentee owners on my street complain. City Hall remains deaf, dumb, and blind.
first 2 weeks of march sales 50% off in Victoria inventory up 3 listings forevery sale about 4 months of inventory now. Market is going nowhere but down
Monetary policy alone is not correcting housing prices like many thought it would. Investors have too big of a monopoly on the market now so unless fiscal policy is made to disincentive buying of homes to be held in a portfolio, affordability will only get worse over time even with high rates!
I would generally agree. For me, it’s about having policy which emphasizes single family residential real estate for resident Canadians first, as well as policy which incentivizes the use of residential real estate as housing over the long term, and not as a speculative commodity and/or post-construction profit vehicle.
Federally, perhaps it’s time to look at: (a) restricting home ownership only to named, resident Canadian citizens (i.e. persons with a Social Insurance Number, which is verified at time of purchase and registered on title); (b) forced divestiture of single family residential real estate currently held by any entity that isn’t named citizen; and (c) increasing capital gains on non-principal housing up to 100% of the gain (up from the current 50%), as well as the capital gain being levied annually on owner’s income tax filing (since ownership would be easily associated with individual named citizens based (a) above) and/or every time a named individual is taken off title.
Provincially, how about more efficient regulation of the real estate sales profession: forbidding split-commission based compensation for agents / brokerages, instead mandating a fee-for-service structure (i.e. per hour charge rate), with services and quality standards specifically spelled out in contract, and each agent/brokerage requiring to be paid by each of their respectively clients directly.
In my view, lots of ‘cascading benefits’ if the above are implemented, in terms of controlling excess liquidity and the presence of non-essential demand in the marketplace.
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