Canada

Canadian Real Estate Prices Dropped For The First Time In 2 Years

Canadian real estate gave back some of its record gains for the first time in years. Canadian Real Estate Association (CREA) data shows the benchmark price of a home fell in April. A typical home saw prices fall only slightly and annual growth remains high. However, Canada hasn’t seen prices fall in two years, and annual growth is rapidly decelerating.

Canadian Real Estate Prices Made A Small Drop Last Month 

Canada’s typical home price pulled back slightly but remained at astronomical levels. The composite benchmark reached $882,400 in April, down 0.3% ($2,600) from the month before. A typical home is still (23.8%) $169,600 higher compared to last year. A big annual increase but it’s decelerating quite fast.

Canadian Residential Real Estate Benchmark Price

The composite benchmark price of a home across Canada, in Canadian dollars.

Source: CREA; Better Dwelling.

Canadian Home Prices Made The First Drop In 2 Years

Canadian real estate prices made a (relatively) small decline but it was the first in years. The 0.3% ($2,600) drop os the first seen since April 2020. That was the first full month of public health restrictions and a sudden shock to the market. National home prices climbed continuously after, right up to last month.

Annual Home Price Growth Is Rapidly Decelerating

Annual growth is quickly decelerating and not just due to last month’s price drop. The 12-month increase in April at 23.8% is the second straight month of deceleration. Annual growth has trimmed about 5.4 points and is back to the lowest rate since October 2021.

October 2021 wasn’t very long ago but that tells us a little about the rate of deceleration. It took four months to accelerate and only two months to roll that acceleration back. Deceleration has only been brief but double the speed of acceleration. 

Canadian Residential Real Estate Benchmark Price Growth

The 12-month rate of growth for the Canadian composite benchmark price.

Source: CREA; Better Dwelling.

Canadian real estate benefitted from a flood of cheap money and exuberant buyers. Government backstops preventing any adverse outcomes, also provided moral hazard. Many see home prices as a one-way ticket higher, supporting exuberant gains. Any decline and the government would step in, right? If you thought there was no way to lose money when buying a home, you’re more comfortable paying whatever it takes.

Higher interest rates are beginning to roll back some of the stimulus driven gains, but the gains are still very large. The price drop was just a tiny fraction of what the market gained over the past few months. A price drop is very different from what we’ve seen recently, though. It may indicate a change in market direction. This is something economists have been warning will (and needs) to happen.