After months of cooling, Canada's housing market is officially entering into bear territory, says BMO's Chief Economist Douglas Porter.
In a message sent out to clients, Porter underscored how quickly Canada's housing market has fallen since its February peak, thanks to an aggressive rate hike schedule from the Bank of Canada. Not only have home prices fallen for five consecutive months, hitting a new national average of $629,971 in July, but sales have plummeted too.
"The inventory of unsold homes has risen to 3.4 months from an incredibly skinny 1.7 at the start of the year," Porter wrote. "That's getting back close to the much calmer conditions prevailing just before the pandemic when they were a bit above four month's supply."
Although this drop in sales is an obvious sign of the market slowing down, Porter says it's not the most concerning factor.
"A metric thats a bit more concerning for the near-term outlook is the ratio of sales to new listings, which has plunged to just above the 50 level after holding well above a record high 75 for all of 2021," Porter says. "In Ontario, that ratio has dropped to barely above 40, a level it has seen only once in the past 25 years (in the depths of the 2008/09 downtown). Prices have famously started to drop in many Ontario cities in recent months, including the GTA but they're still up a tad from a year ago. This ratio says there is more weakness coming, and soon."
Indeed, prices in the Greater Toronto Area (GTA) are still up from where they were one year prior, but that gap is narrowing every month. According to the latest data from the Toronto Regional Real Estate Board, the median home price in the GTA hit $940,000 in July, just $28,500 above the $911,500 median of July 2021. In the Durham region, prices have already dropped to the same level as July 2021, with some cities even seeing theirs slip below what they were one year prior. And in Simcoe County, the median price fell to $850,000 in July 2022 -- $10,000 below what it was in July 2021.
It's important to note, however, that although price are continuing to fall all across Canada, the Canadian Real Estate Association says that the pace of price declines appears to be slowing. July’s price drop was the smallest thus far, and although the MLS Home Price Index also dipped by 1.7% monthly, it was by smaller than the 1.9% decline recorded in June.
But with another interest rate hike likely on the way next month, further cooling of the housing market is expected, likely pushing it further into bear territory.
