Winners, losers as home sales seek bottom
October 25, 2022
Sales of homes in Canada have plunged as much as 30 per cent in major markets since the introduction of higher interest rates in 2022. These sales may continue to tumble, warns the Royal Bank of Canada (RBC), with some centres hit worse than others.
"We think the bottom is still some ways away," Robert Hogue, assistant chief economist at RBC Economics, said in an October 2022 client note.
"Buyers are in an exceptionally tight squeeze, facing the worst affordability conditions ever in large parts of the country. They're clearly on the defensive at this stage."
The Bank of Canada has hiked its key lending rate by 3.25 per cent since March to a 14-year high. It's widely expected to deliver an additional three-quarter-point increase by the end of the year—lifting its overnight rate to 4 per cent.
"The negative impact of higher interest rates on prices is still running its course, depressing the values of [higher-priced] single-detached first and foremost," Hogue said.
Despite the general weakness in real estate across Canada, there are still some regions, like Calgary, that are bucking the trend, he added.
"Alberta's stronger economy, the rebound in in-migration and Calgary's relatively favourable affordability undoubtedly continue to stoke housing demand at this stage," Hogue said.
Alberta has been touting its relatively affordable way of life to attract residents from other provinces—and it is working, according to the latest Statistics Canada data.
About 10,000 people from other provinces moved to Alberta in the second quarter of 2022, with more than half of these coming from Ontario.
By comparison, the correction in the Montreal housing market has been accelerating, particularly on the Island of Montreal, as higher borrowing rates take an increasing toll on buyers, Hogue says.
"Island prices are now below year-ago levels. We see little that would alter the market's trajectory in the coming months, especially with more interest rate hikes likely to weigh on buyers," Hogue said.
