Bank's report shows sales slump in May as prospective homeowners sit on sidelines
Canada's housing markets experienced a slowdown in May as buyers waited on the sidelines ahead of anticipated interest rate cuts from the Bank of Canada, according to RBC's latest analysis.
"Buyers remained in a wait-and-see mode in May with an interest cut looming around the corner," a new report by the bank’s assistant chief economist Robert Hogue said, noting a slowdown in home resale activity in most markets last month based on early data from real estate boards.
"Home resales slipped from April levels in most cases when adjusted for seasonal factors,” the bank wrote in a report. “Bottom line: the broad recovery that started late last year essentially stalled this spring."
The exception was the red-hot Calgary market, which saw a 9% monthly jump in sales aided by an influx of new listings, alleviating supply constraints. RBC cited Calgary's "explosive population growth and a vibrant economy" fuelling "exceptionally strong housing demand," with prices up 9.5% year over year.
In contrast, buyer demand softened elsewhere as higher mortgage rates and affordability challenges kept many prospective purchasers on the sidelines. RBC highlighted inventory buildups in the Toronto and Vancouver areas shifting negotiating power towards buyers.
"Rising supply and softening demand are giving buyers more bargaining power," RBC said of the Greater Toronto Area, where the MLS Home Price Index dipped 0.4% month-over-month in May. "We expect higher inventories will continue to exert downward pressure on home prices in the near term amid intense unaffordability pressures."
In Montreal, RBC noted the spring season "failed to energize" the market, with sales down for a third straight month in May. However, price growth remained positive at 0.1% for single-detached homes and 2.3% for condos.
Vancouver also saw lacklustre buying activity despite being a typical seasonal high point. RBC estimated resales fell over 5% from April, with for-sale inventory hitting a four-year peak.
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"Upward momentum is likely to wane if demand remains sluggish and inventories keep piling up," RBC warned of the Vancouver market's 2.3% year-over-year price appreciation.
Looking ahead, the bank expects it will "take several cuts to pull a critical mass of buyers from the sidelines" once the Bank of Canada begins lowering interest rates, allowing the housing recovery to regain traction later in 2023.
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