In April and May, the Canadian housing market looked like it was poised for a comeback, heating up steadily after the Bank of Canada held steady on rate increases for a few months. May numbers (released in mid-June) showed a positive trend, with sales climbing a very respectable 5% month-over-month, new listings up by 6.8%, and the national average price up 3.2% year-over-year.

I wouldn’t go so far as to call those few months a “market recovery,” however. It was a bit of a jump in transactions, as a result of a few factors: a traditional seasonal increase in activity, a group of buyers locked in at relatively favourable rates, sellers taking advantage of the fact that buyers didn’t have much to choose from, and – finally – rising consumer confidence that there would be no more rate hikes.

But economists predicted that the momentum we were seeing was unsustainable, and CREA’s June stats, coming in on the heels of the Bank of Canada’s latest rate hike, are proving those predictions true, at least in the short term.

We’re already seeing incoming transactions slow

As expected, the Bank of Canada increased rates another 25bps, bringing the overnight rate to 5% – its highest level since 2001. Despite falling inflation numbers, the job is not done, and we can expect the BOC to stay on the same course.

CREA reported that national home sales were up by 1.5% month-over-month in June, while actual activity came in at 4.7% more than June 2022. The national average sale price showed a 6.7% year-over-year increase in June, continuing to confound policy makers. While CREA is reporting that the number of new listings increased by 5.9% month-over-month, the number of homes available for sale on MLS sits at its lowest levels in 20 years (outside of June 2021).

We anticipate deal volume to remain fairly steady, but more rate hikes will have a downward effect. Prices will remain high, given the lack of inventory, plus the fact that new home starts are down and will remain well below what is really needed.

It’s a lot harder to get into the market right now

Many first-timers simply aren’t qualifying for mortgages at these higher rates, especially with the stress test. People looking to move up into a larger home are having trouble finding what they want, so many are opting to stay put and renovate instead. Also, summer is traditionally a slower time for the market. People aren’t just taking vacations from work – they’re taking a break from buying, which decreases demand even further.

READ: Expert: Lip Service Alone Will Not Solve The Housing Crisis

For those who are interested in buying, things have gotten exponentially more difficult. The shifting interest rate landscape has made it harder to close deals. In some cases, even if buyers have already qualified, it’s gotten tougher to keep the deal together. Lenders are being ultra-cautious: if things aren’t fitting nicely in a box, they’re refusing to fund. So there simply aren’t the same numbers of qualified buyers around.

There are certain price brackets that have stayed busy. Properties under $700K are, obviously, more accessible to those with limited budgets. But once you get into the million-plus range, things get a lot tighter. With fewer qualified buyers, properties sit longer.

The small bump in supply holds promise

May's 6.8% increase in inventory and June’s 5.9% bump are taking us towards a more buyer-friendly market. There are more properties on the market right now, which is giving buyers a little breathing room. Right At Home Realty sales stats show inventory that has been steadily climbing over the last couple of years: we had 1,800 listings in June 2021, 2,141 in June 2022, and are up to 2,396 as of July 14, 2023.

The rising inventory numbers may not actually mean that more sellers are putting their homes on the market, however. Our realtors have commented that days on market have been increasing, and they are needing to resort to price reductions as well. Properties simply aren’t moving as fast, and are staying on the market longer, which is what’s impacting inventory numbers most significantly.

A more balanced market is good news for beleaguered buyers

The writing is on the wall: the momentum we were seeing in April and May simply isn’t sustainable with current conditions. But inflation gets more under control in the coming months and we head into the fall market, I believe demand will pick up again. In the meantime, I’ll keep following bank economists, business reporting, CREA and TRREB stats – and connecting with Right At Home Realty and Inc. agents to understand their on-the-ground experiences.

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This article was produced in partnership with STOREYS Custom Studio.

Real Insights with John Lusink