The latest stats show further softening of the Canadian housing market but it's unclear whether investors are holding back or if it is a sign of mortgage rate rise pressure
Canadian home prices could be at risk if listings continue to rise according to Desjardins’ principal economist Marc Desormeaux.
Responding to the latest reading of the Canadian housing market, the economist said that cracks are starting to appear, although there are some pieces of the puzzle that will remain unclear in the near term.
The Canadian Real Estate Association (CREA) reported Friday that national home sales edged up 1.5% month-over-month in June, with increases in a little over half of all local markets, with gains in British Columbia and Alberta offsetting fewer sales in the Greater Toronto Area (GTA).
The rise was smaller than in April and May while the actual (not seasonally adjusted) number of transactions in June 2023 came in 4.7% above June 2022, the largest year-over-year national sales increase in two years.
The MLS Home Price Index was up 2% month-over-month but was down 4.5% year-over-year, but new listings jumped 6% - the third consecutively month of rising listings - and this should be closely monitored says Desormeaux.
“Whether it reflects investors trying to time the market in an environment of strengthening prices or the response of some mortgage holders to sharply higher debt servicing costs will only become clearer in the next few months,” he wrote in a commentary.
RBC economists Robert Hogue and Rachel Battaglia also noted that prices may start to reflect changing housing market conditions, although for now many markets remain tight with sellers in control.
“So far, the growing supply hasn’t done much to ease (recently re-emerged) upward price pressure. But if sustained, we would expect the pace of property appreciation to slow in the coming months,” their commentary stated.
Levelling off
But Shaun Cathcart, CREA's senior economist, says the market is settling down with the rise in listings simply playing catch up to sales levelling off to near historical averages.
“History suggests the price side of things will respond to this with only a slight lag,” he said. “Add to that the recent Bank of Canada rate hikes, and we can probably expect price growth to moderate in the months ahead, likely still with some degree of upward pressure, but less than in the last three months.”
For now, the rise in listings does not come near to historical levels.
There were 3.1 months of inventory on a national basis at the end of June 2023, unchanged from the end of May and down more than a full month from the most recent peak at the end of January. The long-term average for this measure is about five months.
