Only 2 days remaining in Spring before we have the longest day of the year and the official start of summer on June 21. So if we’re to look back at Spring here, we can see that one of the more forefront stories in Canadian real estate circles for Spring 2023 was the ‘rebound’ seen in the housing market. We saw the first national year-over-year sales increase in almost two years, and looking at that from ground level it was a very welcome change for homeowners who had shelved plans to put their homes on the market before the chill came.
It’s been a promising turn of events, if not a natural resumption of the standard realities of market forces doing what they do. That’s preferable for homeowners, but at the same time there is still a pressing need to find a balance and there are still too many people who are shut out from owning a home despite having a good income and credit history. That itself may be a discussion for another time, but it’s important to say that those who take exception to home prices have their grievance with federal and municipal governments rather than homeowners themselves.
Realtors are among those who’ll be happy to see this rebound, but one thing it will not alter is the competitive nature of the business. Realtors who are newer to it may be at a disadvantage no matter how strenuously they try to generate new clientele, but for these agents our online real estate lead generation system here at Real Estate Leads is an excellent way to get better results from those efforts.
Let’s now turn to looking at the housing market rebound in greater detail, and specifically with how it may run out of steam to at least some extent.
Better than Incremental Gains
The housing market gains seen in May that came after an 11.3% spike in April did narrow the gap between current sales rates and pre-pandemic levels, said RBC assistant chief economist Robert Hogue. Home sales are now just 6% down from where they were in February 2020, the approximate time when the pandemic was about to begin and turmoil was to reach into every aspect of Canada’s economy.
But this current recovery rate is stronger than expected, and gains were seen across the entire country. Every province had sales numbers up considerably, and the largest increases were in British Columbia. There sales increased 23%, and Ontario was a close second with 22%. As for individual cities, not much surprise in seeing that in Vancouver and Toronto home sales increased 35% and 32% respectively.
For the second consecutive month median home prices were up across the country too. The national composite MLS Home Price Index fell 15% from its February 2022 peak, has now gained 4.1% over just the last two months. May’s 2.1% rise lines up with the average monthly rate of increase seen during the market boom.
Here are cities that enjoyed sharp increases in prices. Cambridge, Ontario had prices go up 4.9% month over month, and the number for Northumberland Hills was 4.7%. For Sudbury it was 4.5% and 3.6% for Kitchener-Waterloo. Getting right into the Big Smoke, Greater Toronto was up 3.1%. Heading out west to BC the gains were more modest, with Fraser Valley (Abbotsford / Chilliwack) leading the way with a 2.4% rise. Other notables in Canada were Winnipeg with 0.9% and Halifax with 0.8%.
What we can say with certainty is that the sudden turnaround is by and large attributable to interest rates. Let’s remember that it was the central bank’s aggressive hiking campaign over last year that initiated the housing market’s downward spiral, and the signal in March that the worst of rate hikes might be over really reinvigorated demand and pulled prospective buyers and sellers out of their slumber.
That enthusiasm chilled in a big way when earlier this month the BoC changed their mind (not without good logic for doing so to be fair) and raised rates by another 25 basis points to 4.75%. We can be nearly certain that’s going to take a LOT of steam out of the recovery and pull back on the momentum that’s been gained over recent months.
Dampening Market Optimism Too
Industry experts are indeed saying that the Bank’s latest 25 basis-point rate hike will definitely dampen market psychology. That hike did take commercial banks’ prime rate to 6.95%, a 22-year high but what is noteworthy with regards to this discussion is that bond yield rates are climbing at the same time. What this does is push up shorter-term fixed mortgage rates, and up until now they’ve been a popular – and viable – alternative to variable rates.
The Royal Bank also feels the current strength in the market will not likely be sustained for the rest of the year, and they chime in similarly with saying that the 25 bp rate hike should cool demand by at least a few percentage points overall and for individual housing markets too.
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