Real estate prices keep falling for four months in a row pressured by interest rate increases
It looks like Canada’s housing market correction is intensifying, as home prices have been going down for the fourth consecutive month already amid the central bank’s interest rate hikes.
The recent report by the Canadian Real Estate Association (CREA) shows the benchmark home prices were down by 1.7% last month to $789,600.
Home sales also kept falling, reporting a monthly decline by 5.3% and an annual decrease by 29.3%.
An unexpected activity boom pushed real estate prices to record high levels during the first two years of the COVID-19 pandemic, but it has changed the direction since the Bank of Canada started raising its key lending rate. The BoC’s overnight rate, which was 0.25% until March, is now at 2.5%, and at least one more sharp hike may happen next month.
The largest prices drops have been reported in markets with the biggest increases (mostly Toronto and the suburbs). However, there are signs that the trend is spreading all over Canada.
Almost all districts in Ontario showed prices declines in July, with the largest one in Huron Perth, west of Toronto on the shore of Lake Huron – here the prices were down by 6% from June. Real estate prices in Mississauga and Oakville-Milton were down by 5.3% and 4.2%, respectively.
As the BoC is making it clear the rate hike cycle isn’t over, economists are expecting even a stronger home prices decrease. According to Royal Bank of Canada, it will be the biggest housing correction in at least 40 years. Meanwhile, Desjardins Securities believes the average prices may go down by 25% from their peak, but it will still exceed the pre-pandemic levels.