The real estate market in Canada has been experiencing a precipitous decline; could this trend soon reverse? According to the latest figures from the Canadian Real Estate Association (CREA), the average price of a home across the country rose in February. Since the beginning of the rate increases almost a year ago, the benchmark price of the national composite has not increased. While a single price hike cannot be considered indicative of a rising trend, it may indicate that buyers believe monetary policy will no longer affect prices.
A $7,000 increase in the price of Canadian real estate
Last month, real estate prices in Canada reversed their downward trend and rose for the first time in nearly a year. In February, the overall average increased by 1.0%, or $7,100, to $715,400. Despite the increase, prices are still 15.8 percent (-$133,900) lower than they were during the same month in 2017. It’s hard to miss the absence of price increases for homes over the past 11 months.
A record 12-month decline in annual growth was recorded in 2018
Those who only looked at the annual growth rate probably didn’t notice the shift because of the base effect skew. The 12-month movement of the benchmark dropped by 3 points in February compared to the previous month. A month of price increases wasn’t enough to match the enormous increase seen the year before. Even accounting for inflation, this resulted in the steepest decline in annual growth rate in history.
Rising House Prices in Canada
As of this February, the average price drop for a home that was on the market in March of 2022 has been 16.9 percent, or -$145,600. The record decline came to an end in February thanks to a rise of $7,100. Keep in mind that one month’s data does not constitute a trend, and neither do price changes. Nevertheless, buyers who have been on the fence might want to take note of a reversal in the trend. This development is being driven by a shift in buyer attitudes, not by changes in supply.
Perhaps there is a dearth of stock? Well, not exactly; restrictions were eased the previous month. The prefered measure of inventory absorption in the industry, the Sales to New Listings Ratio (SNLR), dropped to 56.7% in February, down from 57.2% in January and down 20.2% from February of last year. This quotient is priced reasonably given the level of demand, and thus falls within the “balanced” range of the market. The pressure was eased because sales dropped much more rapidly than inventory.
Is it shortage of supplies? If not, what else could be driving up prices? A shift in opinion is cited as the reason for the recent success in Toronto. The “pause” in interest rates announced by the Bank of Canada (BoC) in January was interpreted as the market’s recognition of the interest rate’s peak. The Governor’s explanation, in which high levels of consumer debt played a role, carried more weight because debt levels don’t drop like a rock. When they admitted they were struggling, the market took that as a sign of weakness.
This view is likely to harden in the wake of the current bank run crisis in the United States. While there is still the possibility that low rates will stimulate demand and, in turn, inflation. Even though no one expected double-digit inflation in the early 1980s, it was sparked in part by an early relaxation of policy.