National Home Sales Fall in July Despite Lower Interest Rates

Highlights:

  • National home sales edged back 0.7% month-over-month in July.
  • Actual (not seasonally adjusted) monthly activity came in 4.8% above July 2023.
  • The number of newly listed properties ticked up 0.9% month-over-month.
  • The MLS® Home Price Index (HPI) edged up 0.2% month-over-month but was down 3.9% year-over-year.
  • The actual (not seasonally adjusted) national average sale price was almost unchanged (-0.2%) on a year-over-year basis in July. 

National home sales in Canada declined in July due to the high cost of mortgages for prospective buyers who did not rush take advantage of the Bank of Canada’s recent interest-rate cuts. The volume of sales fell 0.7% from June to July after removing seasonal factors, according to the Canadian Real Estate Association (CREA). This follows a small bump in sales from May to June after the country’s central bank made its first interest-rate cut in four years.

The Bank of Canada reduced its benchmark interest rate in both June and July, but would-be buyers have not noticed much change in the cost of a new mortgage. Interest-rate changes only have an immediate impact on variable-rate mortgages, not fixed-rate mortgages, which are currently the more expensive option.

In expensive real estate markets of Ontario and B.C., many prospective buyers are not able to qualify for a large-enough mortgage to buy a property. Realtors and economists expect buyers to start jumping back into the market only after several more interest-rate cuts. If fixed mortgage rates fall closer to 4%, “that’s a level that would likely bring out more buyers.”

Home sales in major markets of Toronto, Vancouver, and Montreal declined month over month, but some smaller markets saw a rise in sales, including in the Hamilton-Burlington region. New listings across the country rose 0.9% from June to July, with the volume of active listings in the Toronto region at its highest level since the 2008-09 global financial crisis. 

Source: Globe and Mail
Source: CREA

Annual Pace of Housing Starts in Canada up 16% in July from June

Canada Mortgage and Housing Corp. (CMHC) reported a 16% increase in the annual pace of housing starts in July compared to June, with the seasonally adjusted annual rate of housing starts for July being 279,509 units, up from 241,643 in June. However, housing starts remain below the multi decade highs observed in 2021 and 2022, particularly in single and semi-detached units. The supply of affordable housing has been a key political issue, and governments at all levels have been trying to boost new construction.

The Canadian Real Estate Association also reported that while home sales in July were up 4.8% compared to a year ago, they were down 0.7% from June this year. Residential construction activity remains sturdy in Canada despite the slowdown in the resale market, with the annual pace of urban starts rising 17.7% to 261,134 units for the month. The pace of single-detached urban starts rose 2.2% to 43,828 units. The annual pace of rural starts was estimated at 18,375 units for the month. The six-month moving average of the seasonally adjusted annual rate of housing starts in Canada was up 3.2% at 255,783 units in July compared to 247,840 in June. 

Source: Globe and Mail
Source: The Star
Source: CMHC

Take Heart, Canada’s Housing Market Hasn’t Been This Stable in Years

The Canadian housing market has been experiencing stability since the Bank of Canada began cutting interest rates in June, with home sales holding at reasonable levels, new listings rising but not flooding the market, and prices steady. 

According to Robert Kavcic, senior economist at BMO Capital Markets, this is an outcome that the industry should be thrilled with, given the massive swings in prices, activity, and interest rates in recent years. 

Home sales dipped 0.7% in July, but they are still up 4.8% from last year, consistent with the low end of the pre-COVID range. New listings rose modestly, and are now 12.7% higher than a year ago, slightly above the 10-year average, allowing inventory to build but not saturate the market. 

The “mortgage renewal cliff” has not brought a rush of distressed sellers to the market, as more than 99.99% of mortgage holders in Canada are in good standing, a delinquency rate significantly lower than the United States and the United Kingdom.

Source: Financial Post

Young Canadians Have ‘No Shortage of Barriers’ but Are Still Optimistic about Homeownership

A Royal LePage survey reveals that 84% of Canadians aged 18 to 38 consider owning a home a worthwhile investment, and 54% believe it’s an achievable goal. Despite the challenges faced by the youngest cohort of homebuyers, the next generation remains committed to their pursuit of owning real estate and is optimistic about making their dream a reality. 

The cost of borrowing has begun to fall, but persistent supply shortages mean housing prices remain high. The average home price in July was $667,317, almost unchanged from the same month a year ago.

However, some parts of Canada are more expensive to live in, such as Ontario and British Columbia. In Ontario, only 47% of young people feel homeownership is an achievable goal, the lowest among all regions in Canada. 

Young buyers are aware of the state of the real estate market and government programs available to them, such as the First Home Savings Account (FHSA), which allows first-time homebuyers to save money tax-free.

However, some young prospective buyers are also making sacrifices that could compromise their long-term financial stability, such as putting off retirement savings or delaying their education. Policymakers need to do more to support young Canadians in the housing market.

Source: Financial Post

Distressed Real Estate Sales Rise, but Often, Potential Buyers Find the Price Isn’t Right

The number of distressed commercial properties for sale is on the rise, with developers filing for bankruptcy protection or lenders forcing their projects into receivership. Over the first half of the year, there were $803-million worth of distressed commercial property sales in Canada, more than double the amount from the first six months of last year. However, real estate professionals say there’s a disconnect between buyer and seller expectations, which could lead to a boom in transactions, particularly as defaults are expected to increase.

In the first six months of the year, there were 137 construction and real estate receiverships in Canada, an average of 23 a month, according to new data from the federal Office of the Superintendent of Bankruptcy. At that pace, the country would hit 274 receiverships in 2024 in real estate, rental, leasing, and construction. This compares to 143 real estate and construction receiverships last year, which was up from 108 in 2019, before construction and borrowing costs soared.

Mike Czestochowski, managing director of insolvency firm TDB Restructuring Ltd., said there has been a gross mismatch between buyer and seller expectations. Buyers “smell blood in the water” and want the best deal possible, while sellers are still clinging on to appraisals from five years ago with unrealistic valuations of their property.

Minto Group, a major Canadian housing developer, said it has become more common to receive pitches for power-of-sale assets and court-ordered sales, which occur after an owner defaults on payments and creditors push the project into receivership. Pitches include one for a high-rise development concept in Brampton, Ont., and another for the unfinished luxury condo tower The One, in Toronto.

Source: Globe and Mail