Canadian home sales are down more than 29% from last year
Canadian home sales have plummeted in recent months and July was no different. Seasonally adjusted sales fell 5.3% in July and unadjusted sales were 29.3% lower than the same month last year. This is a significant slowdown from the top, but not necessarily for the market. “This leaves activity back in the pre-COVID range, or about 40% below the peak of the demand-side boom seen last year,” said BMO Robert Kavcic. Adding, “it also leaves seasonally adjusted activity below the average of the past decade.” “If there was ever any doubt that the COVID explosion was a demand-side phenomenon (certainly no doubt here), this chart makes it clear. Notice that sales at one point rose more than 50% above the 10-year average.”
The normalization of interest rates has pushed demand back to pre-pandemic levels
During the pandemic, low interest rates have helped drive demand as budgets grow when less cash is spent on interest. At the same time, these expanded budgets can absorb price increases faster. As Canada was flooded with the cheapest mortgage debt in history, it fueled a little excess demand, BMO argues. Typically large inflows of cheap capital attract investors, helping to strengthen demand pressure. Suddenly, these pressures began to disappear as the cost of capital rose. “The flip side, now that the investment activity has died down and the demand push has stopped, is that we are in a period of benign activity,” Kavcic explained. “We don’t see any unusual increase in new listings yet (trends are still very normal), but weak demand will allow inventory to continue to gradually increase and prices to continue to fall through 2023.”
