On Tuesday, November 15, the Canadian Real Estate Association (CREA) released its national housing statistics for the month of October. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for members:

In a surprise to many, home sales recorded over Canadian MLS® Systems edged up 1.3% between September and October 2022.

To close observers, this should not come as a surprise given that month-to-month sales declines have been becoming increasingly smaller since May. For some, the change from negative to positive results is a big deal, if only psychologically.

A 1.3% increase may not seem like much since our natural inclination is to compare it to zero. But for those who don’t spend their time following every detail of the housing markets in Canada, that small gain will be compared to a general sense that the sky has been and still is falling. That’s why it was seen as such surprise.

And a welcome surprise it was. We have been saying for some time  that the market of late 2020 and most of 2021 is not coming back anytime soon. Not with interest rates having risen as much as they have.

The light at the end of the tunnel we’ve been looking for is stabilization. Stabilization in year-over-year inflation, a top for interest rates (the “terminal rate”), and a bottom for home sales and prices.

At this point it looks like maybe we’re two for four (inflation and home sales). With luck, over the next few months we’ll get messaging from the Bank of Canada they’re done with the rate hikes. And when all those pieces are in place, prices should be able to find a floor.

Month-over-month price declines have been getting smaller since June but, like the Bank of Canada, they’re probably not quite there yet.

It’s been a rough year for housing markets, for both mortgage holders and prospective home buyers. But it’s important to remember this is not intrinsic to the housing market, where longer-term there’s arguably still too much demand and not enough supply. It’s (temporarily) about inflation.

The Bank of Canada began inflation targeting in 1991 and this is the first time since then inflation has been this hot. But this will not be a repeat of the 1970s and 1980s. The Bank’s job is to aggressively attack inflation to bring it back down to target and that’s what they’re doing. Housing, economic growth, employment, and quite a few other factors are not in the crosshairs, but they’re getting caught in the crossfire.

In the next little while, the Bank of Canada’s overnight rate will most likely get to somewhere in the 4% to 5% range and stop. If all goes to plan, inflation will wind back down towards target and the Bank will be able to start to take their foot off the brake.

The “neutral range” for the overnight rate is 2% to 3%, which would be a kind of Goldilocks zone in between where we are today and the 20 offers and +30% home price growth of 2020 and 2021. It shouldn’t take too long to get there, but it will take a while longer.

Courtesy: crea.ca

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