Unveiling the Unsettling Trends: Canada's Housing Market Navigates Challenges Amidst Interest Rate Hikes

Unveiling the Unsettling Trends: Canada's Housing Market Navigates Challenges Amidst Interest Rate Hikes

The decline in Canada's housing market deepened in November, exacerbated by the cumulative impact of interest rate hikes affecting both buyers and sellers.

Recent data from the Canadian Real Estate Association (CREA) reveals a 0.9% month-over-month decrease in sales and a 1.1% drop in the MLS Home Price Index (HPI) for November.

Since the resumption of interest rate hikes by the Bank of Canada in June, sales have plummeted by nearly 13%, essentially erasing the rebound observed in the spring. Prices have experienced a continuous decline for three consecutive months, with November witnessing the most substantial drop in almost a year.

At a regional level, the MLS HPI recorded monthly declines of 1.7% in Ontario, 2% in Nova Scotia (the first decline since March), 0.9% in Manitoba, and 0.4% in British Columbia. Meanwhile, previous price gains have leveled off in Quebec and New Brunswick.

According to RBC's Robert Hogue, Assistant Chief Economist, and Rachel Battaglia, Economist, most major markets are now in a "correction mode." The anticipation is that persistently high interest rates will continue to suppress demand in the coming months, leading to further price reductions in the new year.

Even in Calgary, where prices increased by 1.2% on a monthly basis in November, analysts, including RBC, believe it is only a matter of time before softer market sentiments rein in those gains.

Economists like Robert Kavcic from BMO and Marc Desormeaux from Desjardins expect further price declines, noting that conditions in major markets are shifting in favor of buyers. However, Farah Omran, Senior Economist at Scotiabank, highlights that many potential buyers are looking ahead to 2024, anticipating interest rate cuts that may offset any short-term price declines.

Despite the caution observed in 2023, economists maintain their belief that the Bank of Canada will initiate interest rate cuts in 2024. They argue that the housing market and the broader Canadian economy are facing weakening conditions due to high interest rates, and with notable progress in reducing inflation, a shift toward rate cuts is anticipated by mid-next year.

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