CREA cuts Canadian home price forecast as values drop for sixth consecutive month

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Canada’s real estate association cut its home price forecast for the year as values declined for the sixth straight month in August, with smaller Ontario cities shouldering the largest declines.

The national home price index fell 1.6 per cent to $777,200 from July to August on a seasonally adjusted basis, according to the Canadian Real Estate Association (CREA). Over the past six months, the home price index is down 7.4 per cent. (The index excludes the high end of the market and is the industry’s preferred measure of home prices.)

Prices have tumbled since the spring as the Bank of Canada began raising interest rates to combat inflation. Since March, the benchmark lending rate has increased by three percentage points to 3.25 per cent.

The central bank plans to continue down that path, which will further drive up the cost of borrowing, price more buyers out of the market, and in turn put more downward pressure on home prices.

Despite the lower forecast, large gains in the first two months of the year mean the average annual price will still be higher than in 2021. CREA is calling for an increase of 4.7 per cent to $720,255 for the year. That guidance is lower than CREA’s June forecast for a 10.8-per-cent increase.

Activity has slowed considerably in Ontario cities that were hotspots during the first two years of the pandemic. Over the past six months, the typical home price is down by at least 10 per cent in much of Southern Ontario and regions near the city of Toronto. That includes Barrie, Brantford, Guelph, London and Simcoe. Cambridge is down nearly 19 per cent over that period, and the Oakville-Milton region, a wealthy area west of the city, has declined by 17 per cent.

The association also cut its sales forecast and predicts that sales will be down by 20 per cent year over year instead of a decline of 14.7 per cent as buyers stay on the sidelines.

“Some of them just cannot afford it right now,” said Nadia Cawley, realtor with Right At Home Realty, who has been selling homes in the Toronto region for more than a decade. Ms. Cawley said two of her clients were set to buy a home this year, but after the Bank of Canada’s stream of interest rate hikes and subsequent spike in mortgage rates, they could no longer make the monthly mortgage payments.

When real estate deals die, deposits are often held hostage

The popular five-year fixed mortgage rate is now hovering around 5 per cent, while in early 2021 it was below 2 per cent.

In August, the number of resales fell 1 per cent from July on a seasonally adjusted basis. CREA said this was the first month that activity was relatively steady since the start of the downturn in February.

The home price index drop of 1.6 per cent in August followed a decline of 1.7 per cent in July, 1.9 per cent in June, 0.8 per cent in May, 0.6 per cent in April, and 0.2 in March.

At the same time, homeowners are still expecting their properties to sell for prices seen at the height of the pandemic’s real estate boom. “They’re not getting the amount that they thought they would,” said Ms. Cawley, adding that some sellers are choosing to take their property off the market.

Nationally, the number of new listings dropped 5.4 per cent from July to August, according to CREA.

Private-sector economists are predicting home prices will bottom out next year, with some saying the national average price could fall as much as 25 per cent from February’s peak.

Compared with last August, the home price index is up 7.6 per cent.

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