Trend Watch: Rising Interest Rates, Housing Activity And Pricing

After a record breaking 2021 and start to 2022, both in terms of demand and price increase, rising housing rates are leading to a nationwide slowdown of home sales across most major regions.  Major Canadian markets including Vancouver, Toronto and Ottawa have all seen resale declines and inventories increasing in these markets.  An outlier has been the Alberta market, led by Calgary, which remains strong.

The largest driver of market change has been the Bank of Canada increasing interest rates through the spring and is expected to continue throughout 2022, raising the cost of home ownership.  Nationally, home sales fell 8.6% on a month-to-month basis in May, according to CREA.  This is following a large drop in April, leaving many markets across the country with demand levels that mirror those we saw pre-pandemic. 

Bank of Canada’s Impact:

Rising rates have been introduced by the Bank of Canada, which resulted in a whole percentage point increase to 2.5% overnight on July 13, with another rate hike expected over summer This is significantly higher than the .25% rate Canada has seen throughout the pandemic.  This rate increase is to curb the highest inflation rates the country has seen in decades.  The impact of these rate changes is a driving force to the softening decline in demand for resale homes.

Toronto Demand Softening:

Toronto experienced some of the country’s most rapid price increases over the past two years, but it is now well past its demand peak.  The market has transitioned into more of a balanced market, with affordability strained by the quick rise in prices over the pandemic and the new interest rate hikes.  Home resales dropped 9.3% from April to May, while inventories grew 26% from May 2021 to May 2022.

Vancouver’s Sensitive Market:

Similar to Toronto, demand for resale homes in Vancouver, the most expensive real estate market in the country, has also peaked. Resale homes demand has fallen 15% from April 2022 to May 2022 and the market has also transitioned into more of a balanced market.  Vancouver, Canada’s least affordable city, will likely be the most sensitive market if rates continue to rise.

Calgary Still Bustling:

Unlike Toronto and Vancouver, Calgary has not been following the aforementioned demand trends. The Calgary market is selling briskly, with home resales above pre-pandemic peak levels, but supply is still too low to meet demand.  Year-over-year sales have increased 6%, with benchmark prices rising 17% annually and 2% monthly, according to the Calgary Real Estate Board (CREB).  The Alberta economy has remained strong through 2022, led by high energy prices, in-migration and affordability, unlike the rest of the country.  

Calgary graph

Home Prices are not falling yet:

While demand has softened as rates rise, prices remain much higher than at the start of the year in almost every housing market across the country.  While prices have come down from the March 2022 peak, the HPI (Home Price Index) is still significantly higher than the end of 2021.  The average rate of appreciation in these benchmarks across these twenty major regions is 11.7%.  While we are starting to see prices come down in several major markets, including Greater Toronto and Vancouver, the seasonal adjusted HPI was still up 19.8% year-over-year in May.

crea benchmark[41] copy

Protect Your Assets:

While housing market prices have been volatile, it remains imperative that you protect your assets and ensure your condominium corporation remains adequately insured, especially as many provinces mandate that all Condominium and Strata corporations be insured to their full replacement cost value. 

The only way to determine an accurate full replacement cost value is by obtaining an insurance appraisal by a professional 3rd party firm.  Doing so means you will be sufficiently insured in the case of a total loss, that you can receive better terms when binding your insurance policy, and that you fulfil your fiduciary duty if you are on the condo board or strata council.