Following through on the cautionary tone of its April Quarterly Forecast the Canadian Real Estate Association has downgraded its sales projections and pricing trajectory.
CREA’s expectation that interest rates had topped out has been undone by the Bank of Canada. The Bank ended its pause on interest rate increases in June and then bumped up again in July.
“A major source of uncertainty has returned to the housing market,” the association said in its July forecast.
Interest Rates & Inflation
The central bank has taken a much more hawkish tone in its most recent rate settings. It has been has pushing rates up at a rapid pace in an effort to subdue consumer demand and bring down inflation.
“It’s working. But it’s not working as quickly or as powerfully as we thought it would,” said BoC Governor Tiff Macklem.
“If we don’t do enough now we will likely have to do even more later.”
While the Consumer Price Index, or headline inflation, has slowed significantly since last summer, and now stands at 2.8%, core inflation remains stubbornly in the 3.0% to 4.0% range.
A key component of core inflation is mortgage costs which have increased 30% in the last year, largely due to the Bank’s interest rate hikes.
Rates are now expected to stay higher for longer.
More Inventory but Slower Sales Growth
Along with interest rate uncertainty, CREA points out that sales growth slowed considerably through May and June, following a significant increase in April. The slowdown was attributed to a very tight market and corresponding price increases. New listings had fallen to their lowest level in 20 years.
That trend appears to be turning around. On a month-over-month basis, new listings increased by 6.0% in June, 7.6% in May and 3.0% in April.
CREA does not expect this loosening of the market to lead to a surge in sales, because of ongoing consumer concerns about interest rates, and has reduced its forecast for home sales for the rest of this year and next.
For 2023 CREA expects to see 464,240 properties change hands, a drop of 6.8% from 2022. The association is projecting 516,000 transactions in 2024.
CREA also expects the national average home price will slip by 0.2% to $702,400 this year. That is a much smaller decline than the 4.8% drop it predicted in its last Quarterly Forecast. The change is based on compositional gains from additional sales in the pricey regions of British Columbia’s Lower Mainland and the Greater Toronto Area, plus stronger than expected price growth across the country in the second quarter of 2023.
A further 3.0% rise, to $723,250 is forecast for 2024.