One of the hottest real estate markets in the world is cooling down

Last month, Canada’s housing sales were down from April, marking the second monthly drop in a row. It looks like buyers and sellers decided to calm down at least slightly amid mad market activity, which has put Canada into the list of the hottest markets in the world. Now, Canada is on the second position in the Bloomberg Economics global bubble ranking, following New Zealand.

“We’ve seen two consecutive months of moderating activity, and it applies to demand, supply and prices,” – Cliff Stevenson, chair of the Canadian Real Estate Association, noted. “There is anecdotal evidence of offer frustration among buyers, and the hurry to get a property during the pandemic is also expected to decline soon, considering at what stage we are with the COVID-19.”

Although Canada has faced the same mix of low interest rates and pandemic-caused demand for larger homes as other countries all over the world, our lack of housing supply has made the bidding wars and prices growth among the strongest anywhere. This has led to a strict warning from the central bank’s Governor Tiff Macklem and changes to mortgage qualification rules from OSFI and Justin Trudeau’s government.

The significant increase in home values has pushed home prices in Canada even higher than rents and incomes. The gap was larger than in case of any country among the 23 studied by Bloomberg Economics, except New Zealand. With such prices growth, buyers are starting to get pushed out of the market, especially with mortgage rates going up with bond yields. Many Canadian provinces are easing lockdown measures, and growing vaccination rates are changing some of the dynamics that caused the last year’s housing madness.

In May, we’ve seen national real estate sales going down by 7.4%, following an 11% decline seen in April. The benchmark prices were still up by 1%, as the new listings fell. However, it was the slowest monthly price increase since June 2020.

Meanwhile, developers are reacting to the tight market planning new supply online. New home construction was up last month, says Canada Mortgage and Housing Corp. All the increases were reported in the condo sector. At the same time, the construction of the single family houses that have caused much of price increases during the pandemic, fell by 12%. The decline reached 18% in case of urban areas.

“Maybe we’ll finally have something else to think about other than real estate and being stuck at home,” – says Shaun Cathcart, the real-estate board’s senior economist. “The light at the end of the tunnel is already close, and it looks like housing may step back for us while we are getting back to our normal lives this summer.”