Home sales slowed in August and prices fell on a monthly basis, the latest decline in the wake of rising interest rates, prompting the Canadian Real Estate Association (CREA) to cut its home price forecast.
CREA said Thursday it expects 532,545 properties to trade hands this year, a decline of 20 per cent from the 2021 record, and deeper than its previous estimate of a 14.7 per cent annual drop. CREA also expects home prices to increase by 4.7 per cent annually to $720,255, a figure the real estate group says reflects how high prices were to start the year. It previously expected prices to rise by 10.8 per cent.
The Canadian housing market has been going through a period of decline since the Bank of Canada began to aggressively tighten monetary policy in March and rapidly hike its benchmark interest rate. The central bank most recently hiked its key rate by 75 basis points, bringing it to 3.25 per cent, the highest level since April 2008.
However, the slowdown moderated in August. National home sales fell 24.7 per cent on an annual basis last month, slightly less than the 29.4 per cent annual decline posted in July. Sales were down 1 per cent from July, marking the sixth straight month of decline, but August's drop was the smallest of the last five declines.
CREA says the sales drop was driven by declines in Greater Vancouver, Calgary, Edmonton, Winnipeg and Halifax-Dartmouth, offsetting gains in the Greater Toronto Area (GTA) and other Ontario markets.
Home prices also fell on a monthly basis. The MLS Home Price Index, which CREA says is a more accurate price comparison than the median or average price, fell 1.6 per cent compared to July, with the benchmark price dropping to $777,200. However, on an annual basis, the index is up 7.1 per cent compared to 2021, the first single-digit increase in nearly two years.
CREA chair Jill Oudil says August's smaller decline in sales, along with the stabilization of supply and demand conditions in several markets, "could be an early sign that this year's sharp adjustment in housing markets across Canada has mostly run its course."
"That said, some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing," Oudil said in a news release.
But some economists expect further declines in the Canadian housing market as the Bank of Canada signals it will continue to aggressively hike interest rates. The central bank said in its interest rate decision last week that "the policy interest rate will need to rise further."
"The bigger picture is that there is still an extremely heavy interest rate shock to absorb, and it will likely take more time to play out," BMO Capital Markets senior economist Robert Kavcic wrote in a research note on Thursday.
"With at least another 50 basis point (hike) to come in short order, there is likely more repricing to go."
Desjardins senior director of Canadian economics Randall Bartlett says while the slowing declines provide some room for optimism, "we should curb our enthusiasm", noting that much of the sales increases were concentrated in the GTA.
"We believe this is more likely to be a dead cat bounce than a bounce back in the Canadian housing market," he wrote in a research note.
"With rates continuing to ratchet up since August and more hikes likely in the hopper given recent data, this will continue to push residential investment to contract and weigh on the Canadian economy. We are of the view that this is likely to push the Canadian economy into a recession in the first half of 2023."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.