Canadian real estate is changing: what you need to know – RE/MAX News IG News

The Canadian real estate market is currently in a state of flux.

It’s hard to understand why Canada’s housing sector posted unprecedented gains a year ago — from tremendous sales activity to huge price increases — and now the industry is in the midst of a sharp recovery. Every market analyst and financial institution has predicted how far the country’s real estate market could fall further. The Royal Bank of Canada (RBC) forecasts a 25 percent drop by the end of next year, while Desjardins economists forecast a 20 percent drop in the next year.

Whatever the case, Canada’s real estate market – whether it is a major urban center or cottage country – is going through an extraordinary transition. No one knows when the trend will turn and when the next expansionary cycle will begin.

So, what’s actually happening? Here’s a summary of what you need to know about today’s market.

What you need to know about this Canadian real estate market

Here are five things you need to know about what’s happening in the Canadian housing market:

#1 Domestic prices have started to fall

It’s no secret that prices have plummeted past their pandemic peak. According to the Canadian Real Estate Association (CREA), the national median home price in July was $629,971, down five percent from the same period a year ago. When the Greater Toronto Area (GTA) and Greater Vancouver Area (GVA) are removed from the calculation, the country’s average price will be reduced to approximately $525,000.

In addition, most of the monthly decline is located in the Ontario real estate market and the British Columbia housing sector. The Prairies have remained flat while Atlantic Canada posted gains.

#2 Housing demand is down

In response to rising interest rates from the Bank of Canada (BOC), which have affected mortgage rates (see more below), housing demand has plummeted nationwide.

CREA figures show that national home sales declined 5.3 percent in July and monthly activity was down 29.3 percent from July last year. In addition, three quarters of sales declined in all local markets, led by GTA, GVA, Calgary, Edmonton and Fraser Valley.

,July saw a continuation of the trends we’ve been seeing for a few months; A drop in sales and a reduction in prices in some of the more expensive parts of the country as well as in places where prices have risen the most in the past two years. CREA President Jill Oudil said in a news release.

#3 Picking up new housing construction

Unfortunately, new housing construction activity has not returned to the level seen in early 2021. However, according to the Canada Mortgage and Housing Corporation (CMHC), the numbers are slowly rising this year. In June, housing begins to rise to 273,800, down from the pandemic peak of 305,622. Urban start overall stands at a little over 257,000 units, while rural start is above 16,000 units.

,Monthly SAAR was lower in June than in May; However, the level of housing activity in Canada remains historically high and above 200,000 units by 2020CMHC Chief Economist Bob Dugan said in a statement. ,The reduction in monthly SAAR housing in urban areas of Canada was driven by a low single-isolated start in June. Vancouver, Toronto and Montreal all recorded higher total SAAR starts, driven by higher multi-unit starts, except in Montreal, where single-detached starts registered higher growth.,

#4 Interest rates are rising

The central bank raised the benchmark interest rate to the highest level since the financial crisis more than a decade ago. The institution aims to fight three decades of high inflation with a quantitative tightening – a mix of high rates and balance sheet slackness. The freshness of the BoC has impacted the cost of borrowing for potential home buyers.

Mortgage rates — both fixed and variable rate mortgages — are climbing higher. But one trend flying under the radar is the challenge many borrowers experience in passing a mortgage stress test.

The mortgage stress test, which was lifted last year, determines whether homeowners can still pay their mortgages should interest rates rise. Lenders use this rule to determine whether you qualify for a mortgage and how much you can borrow. In today’s rising rate environment, homebuyers need to make an additional $18,000 to pass the mortgage stress test.

#5 Housing is still in short supply

CREA figures show that the housing supply has yet to improve. In July, the number of new residential listings declined by 5.3 percent on a month-on-month basis. CREA noted that the decline was broad-based, as 75 per cent of local markets saw a drop in supply.

This trend aligns with a new RE/MAX Canada report, which analyzed eight major Canadian housing markets from coast to coast, and found that seven of them had active inventory levels below the 10-year average.

In addition, CREA reported just 3.4 months of inventory in the Canadian real estate market in July, which is considered historically low. This figure measures the number of months it takes to clear current inventory levels at the current sales activity rate.

Will there be other trends?

The COVID-19 public health crisis shocked the world. In Canada, the subsequent housing boom, which occurred amid a collapsing economy and catering employment levels, probably surprised most people. Currently, selling and prices are moderate in many markets, which could be an indicator of further stabilization. But with higher interest rates rising, more pain is likely to be felt among those engaging in the Canadian real estate market.

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