Soaring borrowing costs are reversing home prices and sales in Canada.
Home Prices & Sales in Canada Retreat in May
In what has been one of the world’s hottest housing markets, Canada’s benchmark home price dropped -0.8% m/m to C$822,900 or $635,000, according to the latest data release from the Canadian Real Estate Association (CREA).
This sharp drop in Canadian home prices is coming after those prices skyrocketed more than +50% over two years when the COVID pandemic spurred ultra-low interest rates and high demand for larger living spaces.
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Cities in the province of Ontario saw the biggest price declines.
Home sales also dropped, -8.6% m/m, according to CREA.
Inflation Up Nearly 7% in Canada
The Bank of Canada and the Federal Reserve are running in lockstep regarding the use of interest rate hikes. With US inflation hitting 8.6% and Canadian inflation running at nearly 7%, both national institutions are quickly increasing interest rates to help quell consumer demand.
Juli Oudill, CREA Chairwoman, said, “May picked up where April left off, with sales activity continuing to slow and softening prices in many parts of the country. We are in a period of rapid change, but one that should settle to a more balanced housing market in time.”
Smaller Cities Driving National Home Price Decline in Canada
Smaller cities in Ontario which had experienced the biggest home price gains during the pandemic boom as buyers were priced out of Toronto are now experiencing the biggest home price declines.
Cambridge, Ontario, approximately one hour outside of Toronto, saw its home prices drop -4.6% m/m in May. Likewise, North Bay, Ontario, about four hours away from Toronto, saw its home prices fall -4% m/m.
The same pattern is spreading around Vancouver, British Columbia. Home prices in surrounding markets such as Chilliwack, BC dropped -3% m/m in May.
Ratio of Sales to New Listings Plunged in May
Despite Canada’s housing market cooling, the overall number of home sales in May was just slightly above the month’s 10-year historical average.
However, the ratio of sales to new listings plummeted to 57.5%, a three-year low, according to CREA.
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