Canadian real estate correction is deepest in half a century: RBC

Canada’s largest bank may be the biggest real estate bear after last month’s sales. This week, RBC made it clear to investors that there is a correction in Canadian real estate. After downward revisions to the bank’s forecast, major markets reported further erosion. They see the correction spreading more widely, and it may be the deepest in half a century.

Canadian real estate may see deepest correction in 50 years

Major Canadian real estate markets reported sales last month, and the data wasn’t great. Toronto and Vancouver both posted sharp drops in sales and price, as we discussed this week. Other large markets are also starting to show the erosion of abundance.

“The housing correction is now in full force across Canada,” said Robert Hogg, assistant chief economist at RBC. “In the Toronto and Vancouver areas, the decline in activity is quickly becoming one of the deepest in the last half century.”

According to the bank, higher interest rates were the catalysts for the correction. However, the sudden realization that prices cannot rise forever has dampened the glut. After such a rapid rise, buyers are unlikely to respond very quickly to the lower prices.

RBC suggests that markets that have seen less price growth might fare better, but that’s probably a big deal. Even more affordable markets like Calgary and Montreal are feeling the impact.

Not only Toronto and Vancouver, but smaller markets are slowing down

Leading indicators for real estate in Toronto and Vancouver show that the correction has begun. Hogue says Toronto is now the slowest in at least 13 years, excluding shutdowns in April 2020. Additionally, active listings are up 58% and Toronto’s MLS HPI is down 13% since March — about $178,000 less. The drop in July was only $47,000, and the market had been in a free fall for only a few months. Feelings have already turned into a dime.

Real estate in Vancouver is doing a little better, according to the bank. According to the bank, seasonally adjusted activity has fallen by 40% over the past four months. Home prices in Greater Vancouver are down 4.5% ($57,000) since April. It may seem small so far unlike in Toronto, but RBC sees that changing soon.

“We believe this patch [in Vancouver] It is still in its first stage. “Buyers in the Greater Vancouver area – the most sensitive to interest rates in the country – are facing more pressure as the Bank of Canada continues its outing and affordability reaches stifling levels,” Hogg says.

The larger, more affordable markets weren’t expected to see much of a slowdown, but that may not be the case now. Home prices in Calgary reached their cyclical peak in April, the bank explains. Montreal has yet to release MLS HPI data for July, but the bank sees the average rate as a turning point.

“This development has occurred across the region, which indicates that a large-scale price correction may be in place,” he warns. Adding, “We expect property values ​​to continue declining in the near term as the market adjusts to higher interest rates.”

Canadian real estate patch to ‘intensify and spread’

The correction hardly affected the recent gains, but is expected to pick up pace in the coming months. The Bank expects the Bank of Canada to raise interest rates by another 75 basis points in the fall. The market is expected to “continue chilling”, as inflation imposes further credit strangulation.

“We expect deflation to intensify and spread further as buyers take a wait-and-see approach while ensuring the impact of higher lending rates.”

The data comes just days after RBC made downward revisions to its Canadian property outlook. The country’s markets have usually been resilient in a downturn. Markets have managed to avoid any major national price correction since the 1990s. The bank warns that luck has run out.

RBC now expects a “historic” correction for Canadian real estate. It might sound like bad news, especially for one of the largest mortgage lenders in the country. However, they don’t see it that way. They said it should be a “welcome” event after racing for the past two years. Rising shelter costs have diverted capital from the productive economy. This will lead to a permanent slowdown in economic growth, which is much worse than a few points of housing.

Leave a Comment