Canada's housing market, once red-hot, is cooling down as the average selling price sees a significant decline. In May, the average price of a Canadian home sold for $711,000, marking a decrease of over $100,000 in the past three months. This slowdown is evident in the declining volume of homes sold, which decreased by 20% compared to the same period last year, according to the Canadian Real Estate Association (CREA).
The impact of the COVID-19 pandemic on the housing market was initially tempered, but it eventually rebounded strongly, with record-breaking selling prices and sales volumes. However, the tide has now turned, with rising lending rates making mortgages more expensive and reducing buyers' purchasing power.
"As expected, we are now seeing a slowdown in sales activity and a stabilization of prices," stated Shaun Cathcart, CREA's chief economist. The average selling price of a home in May was $711,000, a decline of more than 13% from the all-time high of $816,720 set in February 2022.
However, it's important to note that the average price figure can be misleading, as it is greatly influenced by sales in large, expensive markets like Toronto and Vancouver. For a more accurate representation, CREA uses the House Price Index (HPI), which adjusts for the volume and types of housing. The HPI experienced a decline of 0.8% in the month, following a 1.1% decrease in April. Despite these declines, the HPI is still more than 19% higher than last year, primarily due to significant gains in late 2021.
The impact of the housing market slowdown varies across the country, with Ontario being the most affected region. Rishi Sondhi, an economist with TD Bank, highlights the regional disparities, with Ontario and British Columbia experiencing significant price declines due to affordability challenges during the pandemic. The Greater Toronto Area, in particular, saw a steep run-up in prices, driven by investor activity.
The suburbs are feeling the brunt of the slowdown, as prices regress to a more balanced state. Cailey Heaps, president and CEO of Toronto-based real estate firm Heaps Estrin, explains that the market is shifting after years of abnormal performance. While higher mortgage rates are expected to bring down prices and impact owners who purchased at peak prices, Heaps remains optimistic about the market's strength due to limited supply and increasing immigration.
British Columbia, which also experienced significant gains during the pandemic, is now witnessing a cooling-off period outside of Victoria and Vancouver. This may come as good news for prospective buyers who have faced intense competition and soaring prices. Individuals like Wesley Favro are hopeful that the market will slow down enough to provide an opportunity to buy a home in the community they love.
The housing market in Canada is undergoing a notable shift as prices decline and sales volumes stabilize. While this may present challenges for some, it also offers opportunities for individuals looking to enter the market. As the market finds a more balanced state, prospective buyers can patiently and strategically navigate the changing landscape.
