Canada

Unsustainable Canadian Real Estate May See Price Moderation Soon: RBC

Canadian real estate prices are still rising, but showing some signs of moderation. That was RBC senior economist Robert Hogue’s take on April home sales. While he sees big price growth to continue near-term, he’s also seeing a fast-changing market. Many of the factors that heated up the market, are beginning to ease just as quickly as they ramped up.

Home Resales Dropped For The First Time In Five Months 

Canadian home sales fell for the first time in almost half a year, going into the busy Spring period. There were 731,600 seasonally adjusted and annualized home sales in April, down 12.5% from a month before. Southern Ontario was home to the lion’s share of declines, but the bank said the trend was fairly widespread.

Activity Pulling Back From “Unsustainably” High Levels 

The market is cooling from unsustainably high levels, according to the bank. “It wasn’t a surprise to see Canadian home resales decline 12.5% in April. After successively setting new record highs through the fall and initial months of 2021, they had little upside left,” said Hogue.  

The economist believes the strong activity in the winter pulled demand forward. Now the market is dealing with that gap of buyers, and factors likely to delay homebuyers. “Unusually strong winter activity likely altered the traditional seasonal pattern, bringing forward activity that would have taken place in the spring,” he said. 

Though he did note not every market was affected by the sudden drop in sales. More affordable markets like Atlantic Canada, the Prairies, and Quebec were still strong. Most of the falling activity is in Southern Ontario and BC. The last two regions tend to lead the market though.

Market Imbalances To Ease To Ease Pressure… Eventually

Home prices are still climbing very fast, but many factors are likely to cool growth. Home sales are falling faster than inventory is a big one, but there’s a few of others. Rising financing costs, affordability squeeze, down payments, etc… Basically, the factors that accelerated price growth are reversing and will slow it. Instead of pulling demand forward, it will push it outwards.

“There is plenty of room for activity to ease further in the months ahead—and yet remain historically vibrant. We expect a gradual rise in longer-term interest rates, deteriorating affordability, mortgage stress test tightening and the resumption of office work to cool demand down a few degrees,” he said. 

Adding, “In the meantime, though, prices are likely to keep rising rapidly.” 

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7 Comments

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  • James in TO 5 months ago

    Hello Stephen, I am glad there is a consistent voice in the public pointing out the insanity in the housing market. Recently, there have been articles in the media about bidding practices (in particular, blind bidding) that are driving up prices irrationally. However, I haven’t seen an explanation of why the “for sale” price can be changed and manipulated constantly. I have seen several listings in my Toronto neighbourhood that start out with a slightly below market price (e.g. 1.499M), then adjust upwards (e.g. $1.79M – likely because the first price didn’t generate the desired bidding), and then relisted with a below market price (e.g. 1.289M) to generate interest, before eventually selling above the below market price. Could you please consider featuring a piece to explain: (i) why the list price is not really an “offer” price? When I buy a phone at Best Buy, they must sell it at the price on the tag, not reject my purchase saying that “this was not our secret desired price”; and (ii) why the seller can reject a price that is higher than the price on the listing? I think requiring sellers to accept their list price (or more) would facilitate a more efficient and transparent housing market. It would certainly reduce the amount of frustration and time wasted in the bidding process. Thanks for your consideration.

    • Michael 5 months ago

      I agree. Houses should be listed for what the seller is willing to accept. Perhaps the government will regulate this at some point, as well as blind bidding, and agents acting for the seller and buyer. You would think this falls under false advertising laws.

    • Paul 5 months ago

      It’s not reasonable to ask sellers to sell if they choose not too. That’s why we have contracts.

      Maybe instead of focusing on the “greedy” sellers you should focus on the predatory practices of RE agents.

  • V 5 months ago

    It’s all a game played by sellers and Realtors. If you want to play games then deal with a Realtor. If you you want to buy with fewer games find for sale by owner. If you expect the practices of shady Realtors to change, well good luck with that!

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