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CMI State of the Market: Canadian Home Sales Decline for a Sixth Consecutive Month – But Is There a Silver Lining?

28 September 2022

August was another down month for Canadian real estate, as the pressures of rising mortgage rates and declining listings continued to weigh on the market. On a cautiously optimistic note, the broad market cooldown that began in the first quarter is showing signs of moderating even as the Bank of Canada (BoC) continues to aggressively raise interest rates.

Home Sales Decline Further in August: CREA

National home sales declined in August for a sixth consecutive month, falling 1% compared to July, according to the Canadian Real Estate Association (CREA). However, the 1% decline was the smallest over the six-month stretch, a sign that the broad market downturn continues to moderate. Roughly half of all local markets reported an uptick in sales activity, led by the Greater Toronto Area. On the opposite end of the spectrum, month-over-month declines were seen across Greater Vancouver, Calgary, Edmonton, Winnipeg and Halifax-Dartmouth. 

Compared to the same month prior year, actual sales activity declined 24.7%, which was smaller than the year-over-year drop witnessed in July. 

The MLS Home Price Index (HPI) was down 1.6% from the previous month but still up 7.1% compared with August 2021.

Canada’s housing cooldown is finally showing signs of moderating. Source: CREA.

 

Majority of Housing Markets Operate “Well Below Pre-Pandemic Levels” – RBC Economics

The softening of housing demand has pushed most markets in Ontario, British Columbia and Quebec “well below pre-pandemic levels,” according to RBC Economics’ Robert Hogue. Compared with August 2021, home resales are down between 12% and 51% across major markets such as Montreal, Toronto, Edmonton, Calgary, Fraser Valley and Vancouver. Current market dynamics favour homebuyers, who have a “stronger hand in negotiations,” Hogue explained.

Unemployment Rate Edged Higher in August

Canada lost 40,000 jobs in August, as the unemployment rate rose to 5.4%, rebounding from the record low of 4.9% in July, according to Statistics Canada. August was the first time in seven months that the unemployment rate increased. Employers let go of 77,000 full-time workers during the month, a figure that was partially offset by the 37,500 gain in new part-time jobs. Average hourly earnings rose 5.4% year-over-year.

Overall employment in Canada has declined for three consecutive months. Data source: Statistics Canada.

TSX Falls Back Below 20,000 as Investors Eye Central Banks, Inflation Data

Wall Street and Canadian stocks rallied into September before giving back some of their gains, as investors continued to monitor economic indicators such as inflation. After briefly climbing back above 20,000, the TSX Composite Index returned below that level in mid-September. In the United States, the Dow Jones Industrial Average tumbled over 1,200 points on Sept.13, its worst single-day performance in over two years, after the U.S. government reported higher-than-expected consumer inflation for August. The consumer price index (CPI) rose 8.3% annually, defying forecasts calling for 8.1% and cementing expectations that the Federal Reserve will continue raising interest rates at its forthcoming policy meetings. 

The TSX Composite Index is trading choppily through September. Source: Barchart.com.

The threat of runaway inflation has forced central banks to hike interest rates aggressively from their pandemic lows. According to TD Securities, the Bank of Canada’s target rate is likely to reach or even exceed 4% before policymakers put on the brakes. “The BoC’s hawkish ambiguity implies a wider range of potential terminal rates for Canada,” TD Securities strategist Andrew Kelvin wrote in a note to clients. In its most recent policy meeting on Sept. 7, the BoC voted to raise its benchmark interest rate by 75 basis points. The central bank has two more policy announcements this year, on Oct. 26 and Dec. 7. 

What Happens Next? 

CMI will continue to highlight market trends and keep investors informed. Visit our website to learn more.

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