Canadian real estate’s epic run is starting to lose steam, according to one of the country’s Big Six banks. BMO wrote to clients to weigh in on the choppy data two major markets reported this week. National numbers won’t be available for a couple more weeks, but there are early signs of price discovery. Higher mortgage rates, projected to climb much higher, are shifting sentiment fast.
Canada’s Major Real Estate Markets Are Hitting Pause
Annual home price growth is grinding to a halt in two major markets — Toronto and Vancouver. Toronto real estate has seen annual growth fall to 34.8% in March. It’s an astronomical gain, so many glossed over the fact it’s lower than the month before. Price growth deceleration at such high growth might not be obvious, but it’s a slowdown.
“Some areas of the [Greater Toronto] suburban freehold/detached segment even look like they were already down in the month, and will likely be pressured further if the BoC follows through with a pair of 50-bp rate hikes,” said Robert Kavcic, a senior economist at BMO.
BMO observed a similar situation in Vancouver real estate. Annual growth of the benchmark price reached 20.7% in March. Huge growth, but also smaller than the month before. This market may also be past growth for this cycle, as long as nothing reignites it.
Canadian Real Estate Sentiment Is Changing Fast
Price growth is showing early signs of slowing, but it’s far from a clear picture at this point. Prices are still rising significantly on the index, and a month isn’t a trend. BMO warns it’s not clear where home prices are heading from the current data.
“Housing market results from the major cities are coming in right now, but they are probably going to yield a cloudy picture for a while,” he said. Adding, “A new round of price discovery seems to be underway amid higher mortgage rates and shifting sentiment.”
Price discovery is the process of establishing asset value after a fundamental change. During this phase, some homes will continue to sell at much higher prices. Others will sell at much lower prices, as buyers are split on the trend. The uncertainty also tends to create more sellers looking to mitigate risk.
It’s too early for a rate hike to fundamentally shake the market like it has, but psychology changes fast. Home prices fetching an emotional premium don’t reference fundamentals. They’re based entirely on the belief that home prices will continue to rise. If that belief is shaken, the gap between fundamentals and exuberance begins to close. Only a change in emotion is needed, which can happen as fast as an interest rate hike.
Kavcic adds, “We could easily be in for an adjustment period similar to that seen when the Bank of Canada and provincial policy makers tightened up in 2017-18. It might take a few months to show up in the official data, but sentiment seems to be changing out there…”
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If you’re laundering money, foreign or domestic, does it matter if interest rates increase? We should keep in mind that Banks are complicit in this activity regardless of what FINTRAC claims. If it’s happening in USA Banks, it’s happening in Canada. The Globe and Mail report that investigations show no illicit money in Canada. How naive do you have to be?
Serves all the dummies right who over paid by 100’s of thousands thinking prices will just keep going up. Especially the ones over paying in Oshawa which is now top 5 bedbug invested place in Canada…….suckers!
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