Real estate sales, prices take a plunge

Real estate sales, prices take a plunge

The Canadian real estate craze has come to a screeching halt and experts see a serious correction looming. Data released by the Canadian Real Estate Association shows home sales fell in April. Increased mortgage rates and untenable prices have seemingly dried up demand. As drastic a decrease seen in April, many pundits believe this is just the beginning.

Canadian real estate sale have been on the decline for a few months now, but took fell drastically last month. Seasonally adjusted home sales dropped by 12.6% in April and down 21% from last year. 80% of markets saw a drop in sales, which hints that speculative behaviour is dwindling.

“The demand fever in Canadian housing has broken and, who would have thought, all it took was a nudge in interest rates by the Bank of Canada to change sentiment,” explained BMO senior economist Robert Kavcic. He has long maintained that this was a case of speculative demand and not a shortage supply.

“When we speak of housing correction it’s not a question of if, but where, how much and for how long? How much will prices fall? Let’s say that we’re just getting started," added Kavcic.

The key interest rate has only increased by 75 basis points and the housing market has already started to decelerate the market. BMO foresees another 100 bps hikes by end of July, and another 125 bps by the end of this year.

“That effectively means that the market will go from being priced at mortgage rates of roughly 1.5%, to somewhere in the 3.75%-to-4.5% range, depending on how bond yields evolve,” said Kavcic.

RBC also sees a decline in housing demand, labelling it a "welcome correction. The bank says the market is past its peak, and is expected to continue cooling down in the foreseeable future.

“We think the sizable drop in activity in April marks a turning point for the Canadian market with further cooling on the way,” stated RBC senior economist Robert Hogue.

“The Bank of Canada’s setting out to aggressively normalizing its monetary policy is a game-changer for the market—turning what has been a tremendous tailwind into a stiff headwind for the market.”