Existing home sales fell 4.1% in August, a sign that the market has responded since the Bank of Canada’s (BoC) last rate hike, although this is not yet a harbinger of a return to affordability.
This is the second consecutive monthly decline while the BoC has kept its interest rate at 5% for two months.
“The dynamics in sales and prices that characterized the BoC’s initial pause are clearly in the past, and we see the weakness extending further and further beyond the highest priced cities.” This observation supports the BoC’s decision “To stop raising its key interest rates at its September meeting,” said Marc Desormeaux, senior economist at Desjardins.
The rise in interest rates and the less favorable buying environment are likely to have slowed the growth of new listings, “suggesting that many owners are increasingly struggling to bear the burden of significantly higher borrowing costs,” he said.
Despite all this, the return to affordability is unlikely to happen immediately as mortgage rates remain high and no reduction in the key interest rate is likely to be announced before 2024, economists estimate.
“Furthermore, despite the meteoric rise in new housing, CMHC estimates released earlier this week confirm that long-term housing construction trends are clearly insufficient to meet the needs of a rapidly growing population. In fact, Desjardins Economics recently predicted that a severe recession, similar to Ontario’s in the 1990s, would only cause housing affordability in Canada’s largest city to fall back to year-end levels. In 2015, by the middle of the year, it was already high this decade,” concluded Mr. Desormeaux.