Canadian Housing Market Sees Shift as Interest Rates Impact Supply and Demand Balance
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The Canadian housing market is undergoing a noticeable shift towards a buyer's market as the Bank of Canada's successive interest rate hikes lead to a moderation in the rapid tightening observed during the spring months. According to a recent report from RBC Economics, data from July indicates a rebalancing of the demand-supply imbalance in the market. Factors such as the hot summer and widespread forest fires impacting different regions are believed to have contributed to this transformation. The housing market experienced a slight decline in home resales (-0.7% month-over-month) in July, marking the first contraction in six months due to the impact of back-to-back rate hikes.
Despite the slowdown in home resales, the Canadian housing market witnessed a significant increase in new listings, rising by 5.6% month-over-month. This reversal in new listings trends has been ongoing since April, with a substantial 24% surge. The report suggests that these developments have brought the overall demand-supply conditions back into balance, effectively offsetting the rapid tightening observed in the spring. Regional sales patterns highlight a varied response to the changing market conditions. While areas like British Columbia and parts of Ontario saw a slowing of sales momentum, more affordable markets in Ontario's western regions, Quebec, the Prairie provinces, and parts of Atlantic Canada showed signs of rebounding activity.
The increase in supply due to more homes being listed has not halted home price appreciation, with the MLS Home Price Index revealing a 1.1% month-over-month increase in property values in July. However, this rate of increase is lower than the 1.9% average observed over the previous three months. The article also underscores the potential economic challenges and uncertainty that lie ahead for the Canadian housing market. Higher interest rates combined with economic uncertainties could impact buyer enthusiasm and prompt homeowners to sell. The authors of the report suggest that the market's strong rebound in the spring was unsustainable and that the recovery will remain slow until interest rates are cut.
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