Rate hikes lead to the largest home prices decline since at least 2005

Canada’s real estate prices reported the largest monthly drop in at least 17 years, affected by growing interest rates.

According to the Canadian Real Estate Association (CREA), the benchmark home price was down by 1.9% in June from May, marking the third consecutive month of declines and the largest decrease since at least 2005.

As inflation shows the highest level since the beginning of 1980s, the central bank has raised the cost of borrowing significantly, increasing its key lending rate from 0.25% to 2.5% since March. As a result, the market saw a sharp change: more buyers now are not able to secure financing. Home sales were down by 5.6% in June compared to the previous month.

Greater Toronto saw its benchmark prices going down by 4.5% over three months to $1.21 million. However, the largest drops were reported in the cities and towns near Toronto that had faced the largest hikes during the COVID-19 pandemic when people benefitted from the possibility of remote work to move further from Toronto.

While Oakville saw a 10% prices decline over the last three months, London, Ontario, about a two-hour drive away, showed a 13% drop.

On a national level, the June prices drop was an acceleration following a 0.5% decline in May and a 1% drop in April.

It’s the first time since 2019 that national real estate prices reported drops for 3 months in a row. This change followed record-breaking two years for the national housing market in which the average price skyrocketed by 50%.



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