The Canadian Real Estate Association has lowered its forecast for home sales this year after a market rebound this spring eased in June, when the Bank of Canada resumed raising interest rates.
The number of home resales rose just 1.5 per cent in June over the previous month after removing seasonal influences, according to CREA, much less than the 5.1-per-cent gain posted in May.
Still, June marked the fifth straight month of sales increases. Activity climbed in British Columbia and Alberta, offsetting a plunge in sales in the Toronto region, the country’s largest real estate market.
CREA predicted that activity will continue to cool after the central bank hiked interest rates this week for the second time in two months, bringing its benchmark rate to 5 per cent from 0.25 per cent early in 2022. In announcing the latest increase, the bank offered no assurances that rate hikes were over.
“A major source of uncertainty has returned to the housing market,” CREA said in a news release, adding that some buyers will likely move back to the sidelines, as they did last year when no one knew when the bank would stop raising borrowing costs. CREA said there was now a “growing consensus that rates will not just be higher, but likely for longer.”
The association predicted that the number of transactions will be 6.8 per cent lower than 2022 levels, when the market slowed considerably. CREA’s spring outlook had forecast a more modest 1.1-per-cent decline this year.
Even though more homeowners put their properties up for sale in June – new listings were up 5.9 per cent over the previous month – CREA said it did not expect this to translate into more sales, given the uncertainty around borrowing costs.
The average five-year fixed mortgage rate was 5.69 per cent in July, according to Mortgagelogic.news, a mortgage analysis firm. In February, 2022, just before the central bank started raising interest rates, it was 3.04 per cent.
Rishi Sondhi, an economist at Toronto-Dominion Bank, said elevated borrowing costs should prompt declines in sales, which will eventually put downward pressure on home prices.
The shortage of listings so far this year has made the market competitive for buyers, which is reflected in the sharp increase in home prices over the past few months.
The national home price index, which excludes the priciest homes and adjusts for volatility, was $749,100 in June. That was a 2-per-cent increase over May and 6 per cent above April, according to CREA. The steepest gains were in the Chilliwack region and the Fraser Valley in B.C., as well as smaller markets in Ontario, including Kingston and London.
Compared with last year, the home price index is down 4.8 per cent.