Canada’s real estate market is cooling. Here’s what to expect this fall

Latest News Peter Carstensen 30 Aug

If you are wondering what maybe coming in the fall, here’s a recent article from economist Sherry Cooper.

After fueling Canada’s economy through the COVID-19 pandemic, the real estate market is showing signs of weakness as home prices fall and bidding wars dissipate.

It’s welcome news for prospective buyers hoping for a better price. But as the busy fall season nears, realtors and economists are at odds over how long the pricing slide will last and how low it will go.

“The fall is going to be interesting because we’re going to see probably more buyers jumping into the market and you don’t need a ton more buyers to provide a little bit more stability to prices,” said John Pasalis, president of Realosophy Realty Inc. in Toronto.

“Just a little bit of a bump in demand could be the difference between homes selling in three, four weeks versus selling in two weeks or selling a lot faster.”

The average home price is still above pre-pandemic levels, but increasing mortgage rates and inflationary pressures are weighing on the market.

When pandemic lock-downs began in March 2020, the Toronto Regional Real Estate Board said the average home price in the area — one of Canada’s hottest — sat at $902,680. Last month, it was $1,074,754, a one per cent hike from July 2021, but a six per cent drop from June 2022.

The latest data from the Canadian Real Estate Association (CREA) showed prices hit $629,971 in July, down five per cent from $662,924 last July. On a seasonally adjusted basis, it amounted to $650,760, a three per cent drop from June. When pandemic lock-downs began in March 2020, the average national price was $543,920.

The association forecast the national average home price will rise by 10.8 per cent on an annual basis to $762,386 by the end of 2022 and hit $786,252 in 2023.

But some economists are anticipating an even greater price reduction.

In June, a trio of Desjardins economists said they expected the average national home price to fall by 15 per cent between its February high — $817,253 — and the end of 2023, but because “we’re almost there,” they adjusted their forecast in August to predict a drop between 20 and 25 per cent.

“Home prices continue to fall and have further to go before they find a bottom,” said Randall Bartlett, Hélène Bégin and Marc Desormeaux, in a report released July 11.

“That said, we still believe home prices will end 2023 above pre-pandemic levels nationally and in all 10 provinces.”

In anticipation of a drop in prices, agents have noticed prospective buyers sitting on the sidelines of the market in recent months, while sellers come to terms with the fact that their homes won’t fetch as much money as they would have at the start of the year.

Lori Fralic calls it a “stalemate.”

“We are seeing low-ball offers,” said the Vancouver agent with Keller Williams Realty VanCentral.

“There’s lots of bargain hunters out there who are throwing out offers but if they don’t have to sell, a lot of sellers are saying, ‘no, sorry, not taking it.”

It’s a change from the torrid pace of sales and frenzied bidding wars seen earlier in the year and late last year.

Much of the shift is attributable to mortgage rates, which mirror fluctuations in interests rates and can eat into buying power.

The Bank of Canada increased its key interest rate by one percentage point to 2.5 per cent in July in the largest hike the country has seen in 24 years.

Economists foresee the increases continuing and Fralic said they’re already encouraging people who don’t need to buy immediately to hold off.

She’s seen a drop in prices in B.C., but said it’s not as much of a decrease as many expected.

“If people are thinking (prices) are going to plummet, I don’t think that’s accurate,” she said.

“If you look at the 10-year average of Metro Vancouver, housing prices are way up and if they do dip, they might dip slightly and come back up. There’s always been sort of a steady incline with dips along the way.”

The Real Estate Board of Greater Vancouver said the composite benchmark price for the region — often Canada’s hottest — sat at more than $1.2 million in July, a roughly 10 per cent increase from July 2021 and a two per cent drop from June 2022.

“It’s anyone’s guess how much prices will fall,” Sherry Cooper, chief economist at Dominion Lending Centres, said.

Markets, she said, tend to be very localized and the surges or drops some see may not be mimicked in others.

For example, she said Alberta has not seen the slowdown many other Canadian markets have because its energy sector is much stronger than it was in the past.

But Cooper noted home sales activity have declined very sharply in the Greater Toronto Area, the Greater Golden Horseshoe Area and in parts of British Columbia around Vancouver.

“It’s the markets that experienced the 50 per cent increase in home prices that have seen the biggest correction, and that’s what you’d expect because those are the most expensive homes in Canada with the largest outstanding mortgages.”

Source: https://sherrycooper.com/category/articles/

Finally Some Good News On The Inflation Front

Interest Rates Peter Carstensen 10 Aug

Finally Some Good News On The Inflation Front

It was widely expected that US consumer price inflation would decelerate in July, reflecting the decline in energy prices that peaked in early June. The US CPI was unchanged last month following its 1.3% spike in June. This reduced the year-over-year inflation rate to 8.5% from a four-decade high of 9.1%. Oil prices have fallen to roughly US$90.00 a barrel, returning it to the level posted before the Russian invasion of Ukraine. This has taken gasoline prices down sharply, a decline that continued thus far in August. Key commodity prices have fallen sharply, shown in the chart below, although the recent decline in the agriculture spot index has not shown up yet on grocery store shelves. US food costs jumped 1.1% in July, taking the yearly rate to 10.9%, its highest level since 1979.

The biggest surprise was the decline in core inflation, which excludes food and energy prices. The shelter index continued to rise but did post a smaller increase than the prior month, increasing 0.5 percent in July compared to 0.6 percent in June. The rent index rose 0.7 percent in July, and the owners’ equivalent rent index rose 0.6 percent.

Travel-related prices declined last month. The index for airline fares fell sharply in July, decreasing 7.8%. Hotel prices continued to drop, falling 2.7% on the heels of a similar decrease in June. Rental car prices fell as well from historical highs earlier this cycle.

Bottom Line

The expectation is that the softening in inflation will give the Fed some breathing room. Fed officials have said they want to see months of evidence that prices are cooling, especially in the core gauge. They’ll have another round of monthly CPI and jobs reports before their next policy meeting on Sept. 20-21.

Treasury yields slid across the curve on the news this morning while the S&P 500 was higher and the US dollar plunged. Traders now see a 50-basis-point increase next month as more likely than 75. Next Tuesday, August 16, the July CPI will be released in Canada. If the data show a dip in Canadian inflation, as I expect, that could open the door for a 50 bps rise (rather than 75 bps) in the Bank of Canada rate when they meet again on September 7. That is particularly important because, with one more policy rate hike, we are on the precipice of hitting trigger points for fixed payment variable rate mortgages booked since March 2020, when the prime rate was only 2.45%. The lower the rate hike, the fewer the number of mortgages falling into that category.

The source of this article is from https://sherrycooper.com/articles/finally-some-good-news-on-the-inflation-front/