National home sales drop in July as high mortgage costs deter buyers, despite interest-rate cuts
National home sales declined in July as mortgage costs remained high, despite recent interest-rate cuts by the Bank of Canada, reports the Globe and Mail.
According to the Canadian Real Estate Association (CREA), sales volume dropped by 0.7 percent from June to July after adjusting for seasonal factors. This followed a modest increase in sales from May to June, triggered by the central bank’s first interest-rate cut in four years.
Although the Bank of Canada lowered its benchmark interest rate in both June and July, many prospective homebuyers did not see a significant change in mortgage costs.
The immediate impact of rate cuts is mostly felt by variable-rate mortgages, which are currently more expensive than fixed-rate options. Five-year fixed-rate mortgages are being offered at rates below 5 percent, while variable-rate mortgages have rates above that level.
Robert Kavcic, senior economist at the Bank of Montreal, pointed out that “early rate cuts are not providing any affordability relief.” In high-priced markets like Ontario and British Columbia, many potential buyers are unable to qualify for large enough mortgages to purchase property.
Realtors and economists expect that buyers will return to the market after several more interest-rate cuts. Kavcic noted that if fixed mortgage rates drop closer to 4 percent, “that’s a level that would likely bring out more buyers.”
Sales in major markets like Toronto, Vancouver, and Montreal fell month over month, while smaller markets, such as the Hamilton-Burlington region, saw an increase in sales. Local realtors credit this rise to growing confidence among buyers that interest rates are declining.
Mike Heddle, a broker with Royal LePage State Realty, observed that this trend is encouraging some buyers in the Hamilton area to make purchases.
Throughout the year, more homeowners have been listing their properties for sale. CREA reported that new listings increased by 0.9 percent from June to July.
In Toronto, the largest real estate market in Canada, active listings have reached their highest level since the 2008-09 global financial crisis, according to the local real estate board.
Despite the changes in sales and listings, realtors and economists consider the housing market stable, with home prices holding steady. The home price index, which reflects the typical home price, stood at $718,700 in July, showing a 0.2-percent increase from June on a seasonally adjusted basis.
