Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada’s big banks are adjusting their home price expectations even lower, after a sudden inventory jump. For a sixth consecutive month, new listings of existing homes for sale climbed. Supplies now sit at the highest level in a decade, with interest rates also hitting the highest level in over a decade. BMO and TD have both recently adjusted their forecast lower, and more banks are likely to follow.
Canada’s two largest housing markets, Toronto and Vancouver, previously kept up with record population growth. It may not be able to for much longer though, with population growing much faster than new housing supply in 2022. Both Stat Can and BMO have highlighted significantly faster growth of housing than the population, for at least two decades. Falling behind last year wasn’t enough to reverse the multi-decade trend, but at this rate it can within a few years.
Canadians are hearing that home prices are unsustainable at higher rates. The expectation shared by most is this means rates will be cut soon. However, it most likely means home prices will have to give up some of the recent gains. The Bank of Canada (BoC) has presented research showing how low rates contributed to higher home prices over the past 30 years. As interest rates fell, sellers captured the additional credit that buyers had received.
TD Economics recently released a forecast predicting that Canadian real estate prices will fall further than expected due to the rise in yields. Rising yields are pushing mortgage rates higher, throttling the demand and leading to a pullback in home prices. The bank sees the average home sale coming in 3% lower this year, followed by another small decline next year.
Canadian mortgage delinquencies are climbing from record lows, but remain lower than pre-pandemic levels. The national delinquency rate climbed to 0.15% in Q2, up 0.01 points higher than the record low. It’s higher than the previous quarter, but nearly half the rate seen pre-pandemic. All three major real estate markets were also below their pre-pandemic highs, some significantly. Higher interest rates may be creating more household stress, but they have yet to produce a higher delinquency rate than was normal pre-pandemic.