Canada’s housing downturn decelerated in October, with home sales rising slightly and prices levelling out. But the volume of activity was depressed and economists warned that home prices would continue to fall as borrowing costs soar.
The number of resales rose 1.3 per cent from September to October, according to the Canadian Real Estate Association (CREA). That was the first rise in monthly sales since February, when Canada’s central bank was about to embark on its campaign to slash the supply of cheap money.
At the same time, the national home price index fell 1.2 per cent to $777,200 from September to October after removing seasonal influences, according to CREA. That was the smallest monthly drop since June, though the eighth consecutive month of price declines.
Over all, October’s activity was 15 per cent below the prepandemic monthly average. Bank of Montreal senior economist Robert Kavcic described the Canadian housing market as depressed and forecast further price decreases given the Bank of Canada’s plan to continue raising borrowing costs to fight inflation.
“The direction of prices is still lower,” said Mr. Kavcic in a research note. The central bank’s key interest rate is 3.75 per cent compared with 0.25 per cent in early March. That has contributed to pricier loans. The average mortgage rate is about 5 per cent compared with sub-2 per cent during the early days of the pandemic. “The depth and duration will ultimately be dictated by where interest rates level off, and how the job market holds up in 2023,” said Mr. Kavcic.
Although mortgage costs have doubled over the past year, many homeowners are still locked in with a fixed-rate mortgage where the monthly payment and interest cost remains the same over the term of their loan. As well, the majority of variable-rate mortgage holders have fixed monthly payments where the payments do not change until they can no longer cover the interest. So far, that has delayed the fallout from higher borrowing costs.
CREA said the number of new listings was up 2.2 per cent from September to October. Though the listings are below the 10-year average, suggesting that homeowners are weathering the higher interest rates and making their mortgage payments.
“There’s just not a lot of forced selling out there at this stage, which can really exacerbate or speed up a price correction,” said Mr. Kavcic’s note.
Toronto-Dominion Bank economist Rishi Sondhi said some homeowners may have to sell if they can’t make their monthly mortgage payments. “If a sufficiently large number of these homeowners end up listing their homes, it could downwardly pressure prices by more than we anticipate,” he said in a research note.
Compared with October of last year, the national home price index is down 0.4 per cent. Since the peak in February, the home price index is down 10 per cent on a seasonally adjusted basis. The last time the index recorded a decline of that magnitude was during the global financial crisis when the typical home price fell 9.1 per cent from March of 2008 to March, 2009. (The index excludes the high end of the market and is the industry’s preferred measure of home prices.)
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