The Canadian real estate markets are in total meltdown and things will get worse before they get better. This week, Canada’s two main housing markets reported a drop in home prices and sales in July. It comes as more households expect house prices to fall rather than rise, which has not been the case for a long time. To add another jet of gas to this dumpster fire, BMO Capital Markets reminds us that the last rate hike wasn’t even a month ago, so it hasn’t been fully reflected in the data yet.
Canadian home sales are falling very quickly
The real estate markets in Toronto and Vancouver tend to be the two big ones, and the picture isn’t great. Both cities have experienced sharp declines in home sales, with Toronto down 47% last month and Vancouver down 43%. Inventory levels have made only minor improvements, but falling sales have “balanced” the market.
Home prices in Toronto and Vancouver cratered last month
House prices in both cities also fell sharply. The benchmark price for a home in Greater Toronto fell $47,500 in July. Vancouver saw a smaller but still large drop of $28,500 over the same period. Rapidly falling southern Ontario, in areas around Toronto, is experiencing the fastest price declines, BMO warns.
“Prices continued to decline in both markets during the month, with parts of southern Ontario beyond the GTA still looking the hardest hit,” said Robert Kavcic, senior economist at BMO.
The bank warned that price falls are only just beginning, with the latest rate hike not fully set in the market. “We remember that the BoC’s 100bp hammer blow came in the middle of the month, so there is more weakness,” he said.
More Canadians see house prices falling than not
At first, the market only rolled with the negative indicators, but now households are taking note of the problem. “In particular, more Canadians now expect house prices to fall rather than rise over the coming months, a sudden shift from optimism that is self-reinforcing through 2021,” explains Kavcic.
Just a few months ago, it was almost impossible to find anyone who thought prices would fall. Now, more people see prices falling over the next six months than rising. “The reality that Q1 prices are gone is now setting in for Canadians as the psychology of the market has changed dramatically,” he says.