With rising interest rates dampening the eagerness of buyers, Canadian residential property prices fell again in October for the fifth straight month, according to new data. And the decline in prices could continue, exceeding that observed during the 2008 financial crisis, according to the National Bank.
Another sign of the housing market cooling: the Teranet-National Bank Composite National House Price Indexwhich covers eleven major Canadian cities, saw an (unadjusted) (unadjusted for seasonality) decline of 0.8% from September to October, a decline, however, less than the 3.1% decline seen the previous month, which represented the largest monthly decline ever listed since the index’s inception in 1999.
This weakening of the market was reflected in several large Canadian cities: with non-seasonally adjusted price drops, between September and October, reaching 1.8% in Ottawa-Gatineau, 1.5% in Montreal, the 1.2% in Quebec, 0.9% in Toronto and 0.1%% in Vancouver.
A bigger drop than in 2008?
Nationwide, the index contracted 7.7% from its May peak. By way of comparison, during the 2008 financial crisis, prices fell by only 6% over the same period and by 9.2% overall in eight months, notes National Bank economist Daren King.
“In a context where monetary policy will continue to tighten in the coming months, house prices are expected to continue to contract and exceed those recorded during the 2008 crisis,” he wrote.
The SNB expects a record cumulative decline in property prices of around 15% nationwide by the end of 2023, if official rate limits around 4% and whether the Bank of Canada “will throw ballast by lowering rates in the second half of 2023”.
Despite this decline, Canada’s home price index was still 4.9% higher in October than in the same period a year earlier. In fact, after peaking in May, the nationwide price index has returned more or less to where it was around January and February 2022.
In total, since the start of the pandemic, property prices have appreciated by about 28% in Canada, according to unadjusted index data. Citywide, it increased by 39.5% in Montreal, 27.1% in Toronto, 23.8% in Quebec City and 22.5% in Vancouver.
Prices go down, but sales go up
While prices are falling, residential property sales rose 1.3% from September to October, according to the National Bank’s tally, the first monthly increase in eight months.
“Despite this sales growth, this shouldn’t be seen as the start of an uptrend, but rather a stabilization of the market,” King said.
“With the rate hike expected by the Bank of Canada in December, the resale market could suffer further declines in the coming months and remain at a level of activity well below its historical average,” said the economist.