The correction hitting housing markets all across Canada is getting even more serious as the national MLS Home Price Index (HPI) saw its largest ever one-month decline in June.
Canada's HPI slipped a noticeable 1.9% in June, according to a new report from RBC Economics. This is nearly double the the 1% drop seen in April and is substantially larger than the 0.5% dip seen in May.
These price corrections, the report says, are largely concentrated in Ontario where every market saw their MLS HPI fall last month. Ontario cities like London, Woodstock, and Kitchener-Waterloo, all of which experienced significant growth during the pandemic, were hit the hardest with falling prices. On the country's west coast, British Columbia's Interior and Lower Mainland regions saw the biggest drops in June.
Areas of the country that were less affected by falling prices in previous months are now seeing more softening. Winnipeg, Montreal, and Quebec City all saw their MLS HPI fall from May to June, something the RBC report says "will mark a turning point."
"Calgary and Halifax may not be far behind with the index largely flat last month," the report reads. "These developments fit our view that property values will come under increasing downward pressure across Canada over the coming months with pricier markets on the front line of that trend."
It comes as no surprise that home sales are down across the country, with resales having fallen 27% since February, including a 5.6% month-over-month drop in June. This trend affects markets all across Canada with a few exceptions seen in Quebec and parts of Atlantic Canada. Declines were largest in Ontario and British Columbia where the high price of real estate means that buyers are much more sensitive to rising interest rates.
And as sales fell, the number of homes put up for sale saw a small uptick, further easing tight supply-demand conditions.
Although these trends have already helped to cool off Canadian markets, things are expected to get even colder. With the Bank of Canada's surprisingly large 100 basis-point increase announced last week, higher mortgage rates will "spoil or delay homeownership plans for many buyers, especially in British Columbia and Ontario where affordability is particularly stretched," the report says.
And with even more rate hikes expected throughout the rest of the year, RBC is projecting that home resales will fall 34% and the benchmark price will drop close to 13% by early 2023. More expensive markets will continue to see the largest impact of rising rates, while more affordable markets like Calgary or Atlantic Canada will be less affected.
"On a provincial basis, we think Ontario and British Columbia could record peak-to-trough benchmark price declines exceeding 14%, and see Alberta and Saskatchewan at the other end of the scale with drops of less than 3%," the report notes.