Housing Prices in Canada

Toronto: There has been a great decline in the price of housing properties in Canada since February 2022. Notingly, June 2022 recorded the greatest downfall in the trend ever in the last 17 years. In June 2022, the downfall was 1.9% (MoM). This is the third straight fall in housing prices in Canada in 2022 and the greatest since 2015.

According to the Canadian Real Estate Association (CREA), the average price of housing properties in the listings fell to C$711,000, February onwards. Initially, it used to be around C$816,720. This registers a straight line decline of 12.9%.

What are the predominant reasons behind this downfall? How long will this trend continue? These are the questions that are haunting the mind of the realtors since December 2021. If you also have the same questions, this article covers it all.

What caused the fall in housing prices in Canada?

It all started from the Pandemic. Due to the COVID-19 crisis, many expats and non-residents of Canada left for their home countries. Henceforth, there came an effective trend of remote work, due to which, even residents of Canada started to work from their home provinces. Therefore, housing facilities in industrial areas like Toronto, Ontario missed tenants and leases due to this reason. This shortage in demand is one of the reasons behind the decline of prices of Canadian housing properties.

Additionally, the National Bank of Canada has announced a 10-times hike in the mortgage and housing finance rates. Initially, it used to be 0.25% of interest per annum which is now 2.5% of the same. This increase is restricting many potential buyers and investors to proceed in their ventures of acquiring properties in Canada. If thought of deeply, again this is creating a shortage in demand, resulting in the price fall.

For more factual establishment, note that, the sales of Canadian housing properties fell by 5.6% (MoM) in June 2022.

Province-wise Status of Price Drop

It is quite evident that this price fall is not restricted to any single location in Canada. Rather, it is prevalent throughout the nation. Let’s take a quick look at the province-wise decline in housing property prices.

Toronto

This is the largest city of Canada and the centre of the finance industry of the nation. This region recorded a fall in benchmark prices by 4.5%. The average market price of the housing properties in this region dipped to C$ 1.21 million (USD 928,000) in June 2022. This used to be approximately USD 1 million earlier.

Oakville

The decline in housing prices in Oakville is by 10%. This is the third straight and greatest fall in the price in 2022.

Ontario

Housing properties in Ontario recorded a dip of 13% in their prices within April to June 2022.

Winnipeg

In June 2022, there was a decline by 2.4% (MoM) in the prices of housing properties in Winnipeg.

Apart from the regions discussed, Vancouver, Edmonton and Halifax housing properties lost 2.4% of the price in June 2022 (MoM). Additionally, Montreal witnessed a decline of 1.3% in the property prices.

Do house prices go down in a recession?

We can get evidence from history that property prices do fall at the time of recession. A major reason behind this is the loss of confidence and purchasing power of common people and investors. Additionally, it also discourages overseas investors to acquire property in a recession-hit nation. 

Due to these fundamental reasons, a great gap is prevalent between the demand and availability curves. The availability curve leading the demand stature results in fall of prices.

To add on to this, Economists of the TD Bank have stated that there are multiple regional issues behind this fall. Sales and prices are getting down abnormally in Ontario and British Columbia due to affordability deterioration due to the Pandemic. Similar is the picture in the Greater Toronto area that saw a great boom earlier due to the flocking of investors for property acquisition.

Furthermore, according to the research and study of a leading analytics firm, even with 95% confidence, there can be a fall of 6.1% in the property prices during a recession. We have discussed more on this in the later sections of this article. Keep reading!

How far could the house prices fall?

Instead of manipulation, let us rely on Expert’s Talks in this regard. Mr. Daren King, Economist of National Bank of Canada forecasted that prices in Montreal province will sink further by 10% and that in Toronto by 15% till the end of 2023.

This is an alarming indicator. Additionally, Canadian Real Estate Associated (CREA) stated that there is an average of 12.9% straight decline in the housing prices throughout. Moreover, the association also added that the House Price Index (HPI) in the nation is dipping at the rate of 0.8% every month after suffering the maximum decline of 1.1% in April 2022. They are predicting that this can lead to a YoY fall of 19% this year throughout.

Therefore, in summing up these statements, it can be easily understood that this trend in the downfall of housing prices is not going to halt instantly. Residents, Realtors and the Canadian market on a whole have to wait for some more time till everything comes to a normalcy.

Selling and Purchasing Property in Canada now

According to Christia Freeland, the Finance Minister of Canada, there will be less opportunity for foreigners to buy properties in Canada in the coming 2 years. The government is focusing on and ready to invest in housing supplies of the existing properties and develop the infrastructure. So, if you are not a resident of Canada, you cannot buy property in Canada right now.

Senior Portfolio Manager and Senior Investment Advisor at LePoidevin Group, Mr. David LePoidevin pointed out that now may not be the right time to buy or sell a property. He explains that there was a hike in the mortgage rates in 1981, but the property prices were not as high as it is now. Therefore, it discouraged investors lesser to that housing mortgages as it is doing now.

Moreover, the Canadian Housing Agency predicts that the mortgage rates may rise up to 3.5% this year to control inflation. This is to control inflation and bring down the housing prices by 5%. Therefore, the trend of this fall can be expected to stretch more over the time.

Mr. Paul Beaudry, Deputy Governor of Bank of Canada states that there will be another surge in the mortgage rates, but it will not affect the economic growth of the nation.

Therefore, there are chances of more fall in the housing prices of Canada. So, both buyers and sellers should now hold on their nerves till the price reaches an equilibrium point. After the recession, the price of the properties may again grow. This will be able to generate more revenue for the housing owners. Whereas, there will be reduction in the mortgage rates, making it more affordable for the buyers to opt for financing their property acquisition process.

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