The Bank of Canada’s recent rate hikes have sent ripples through Canada’s real estate markets, leading to a divergence in trends across major cities. The effects of these rate hikes have been particularly notable in Vancouver, the Fraser Valley, Hamilton, Toronto, and Ottawa, where a drop in transactions and moderated price gains have marked a shift from the previously strong momentum of the spring.
In the latest Special Housing Report from RBC Economics’ Robert Hogue and Rachel Battaglia, the economists look at how markets across the country have varied between June and July based on early market results from local real estate boards.
“There was good news on the supply side again last month. Sellers put up more properties for sale in all early-reporting markets—extending multi months-long trends for the most part. This has helped rebalance markets in Ontario and British Columbia, which had tightened significantly during the spring. If sustained, we would expect price gains to continue moderating in the coming months,” the authors write.
The signs of cooling activity in several of Canada’s largest real estate markets align with the insight provided by RBC economists, who noted, “The spring rebound was premature and will taper off further amid high-interest rates, ongoing affordability issues, and a looming recession.”
Toronto area: Spring momentum stalls
In the Toronto area, the momentum that had been building during the spring months has slowed down due to the cumulative effects of the recent interest rate hikes.
According to RBC economists, “With exceptionally high ownership costs already stretching the limit of many buyers, the latest interest rate increases no doubt sent more of them to the sidelines — stalling the surprisingly-brisk momentum that emerged this spring.” Though amid the cooling activity, an increase in new listings has provided prospective buyers with more options, contributing to a better balance between demand and supply. As a result, the rate of price increase has moderated significantly, with the Toronto composite MLS HPI increasing by only 0.9 per cent month-over-month in July compared to an average of 2.4 per cent in the previous three months.
While single-detached homes have shown stronger price gains, benchmark condo prices remain below last year’s levels, reflecting the challenges posed by high-interest rates and the looming possibility of a recession.
Montreal area: Gradual recovery supported by inventory increase
Montreal’s market has shown signs of a gradual recovery as sellers return after a period of subdued activity.
RBC economists note, “The increase in new listings in July—which we peg at 7.0 per cent month-over-month (seasonally adjusted)—helped extend the sales recovery since spring.” Despite this positive development, the market still faces challenges, with high-interest rates and affordability concerns constraining demand while relatively low inventories limit supply. As a result, the market remains moderately tight, supporting modest price appreciation.
Single-detached homes and condo apartments have both seen price increases, with the median value for these property types rising in July. The recovery, however, is expected to be gradual, given the ongoing challenges in the market.
Vancouver area: A softer tone emerges
In Vancouver, the impact of the Bank of Canada’s back-to-back rate hikes has shifted the market’s tone, leading to a more tentative stance from buyers. RBC economists observe, “Buyers turned more tentative in July, leading to an estimated 3.0 per cent drop in home resales from June on a seasonally-adjusted basis.” However, a positive development has been the increase in sellers coming forward, which has rebalanced the demand-supply dynamics and put a check on the price rally.
The Vancouver composite MLS HPI rose at a slower rate in July compared to the previous months, indicating that price gains are moderating. Despite this moderation, condo prices have appreciated, though the overall affordability challenges and high-interest rates are likely to maintain a “softer tone” in the market for the foreseeable future.
Calgary: Resilient market driven by economic momentum
Unlike other major cities, Calgary’s real estate market has shown resilience in the face of interest rate hikes. In July, home resales increased for the fourth consecutive month, signalling a brisk pace of activity.
The market’s strength is attributed to “strong economic momentum and, importantly, explosive population growth,” according to RBC economists. This combination has led to a more than 15 per cent increase in transactions compared to the previous year. Despite the persistent low inventories, fierce competition among buyers is driving prices higher, with benchmark prices rising at one of the fastest paces in the country.
Townhouses and apartments have seen particularly significant price gains over the past year, reflecting the robust demand in the Calgary market.
A complex landscape ahead
The recent rate hikes by the Bank of Canada have introduced complexity and divergence into Canada’s real estate markets. While some cities have experienced a slowdown in activity and moderated price gains, others have demonstrated resilience, driven by economic strength and population growth. The path ahead remains uncertain, with RBC economists projecting a slow and bumpy recovery, likely gaining momentum once interest rates begin to decrease—a narrative that is expected to unfold in 2024.