Mounting home prices and the central bank's rate increases take their toll
A temporary slowdown might be in the cards for the red-hot Canadian housing market, which is currently wrestling with sustained price growth and inflationary pressures, observers said.
The latest data from the Canadian Real Estate Association showed that the actual national average home price spiked by 20.6% annually to reach a record high of $816,720 in February.
However, a likely moderating factor in this upward trend would be the Bank of Canada’s rate increases, which continue to eat into buying capacity.
“The price to clear the market suddenly needs to drop back to what a median household can afford,” said Stephen Brown of Capital Economics. “That’s where we have potential for what I’d describe as almost like an air pocket – where prices have surged so much, there’s potential for them to gap down to find where buyers are able to come in.”
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Brown estimated that further increases in the central bank’s rate would reduce consumer purchasing power by as much as 25%.
“There’s definitely going to be shock waves,” Brown said.
In some red-hot markets, early signs of deceleration have already become apparent, according to industry players.
“The spring market happened in February this year,” said Toronto-based broker Tom Storey. “You’re not seeing every house that sells on the street, or every condo that sells in a building, sell for more than the last comparable. You’re starting to see some sell under.”
