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Changes in mortgage rates are putting a strain on Canadian homebuyers!

Changes in mortgage rates are putting a strain on Canadian homebuyers!
Changes in mortgage rates are putting a strain on Canadian homebuyers!

Housing Market Analysis August 2022

The Bank of Canada interest rate hike makes borrowing more expensive, which worries homebuyers. Resale activity in August was the weakest in three and a half years, falling for six straight months to 443,000 units. Fewer, more budget-constrained consumers are dropping prices. August's MLS Home Price Index declined 1.6% month-over-month. It's down 7.4% since February's peak, close to the 8% drop in 2017-19. The Bank of Canada is expected to continue tightening until the end of 2022, and this trend is expected to continue.

Weakness is expanding across Ontario and British Columbia

Current slowness is focused in Ontario and British Columbia, but is expanding to Quebec and parts of Atlantic Canada. Last month, activity levels in this market were below pre-pandemic levels. Previously overheated markets in Ontario and the Lower Mainland of British Columbia have seen extremely severe price reductions. During the previous six months, the composite MLS HPI fell 19% in Cambridge, 16% in Kitchener-Waterloo and London, 15% in Brantford, and 13% in Guelph. Chilliwack (-14%) and the Fraser Valley (-9%) also witnessed profound price drops during this period.

Prices in Atlantic Canada are declining

In Quebec, Atlantic Canada, and some sections of the Prairies, property values are declining more gradually. This is due to tighter demand-supply situations than Ontario and BC. Montreal's MLS HPI is down 3.3% in the past three months, or almost half of Toronto's 5.8% dip. Eastern Canada's downturn continues. Halifax's index has dropped 6.3% in the last three months, including 3.9% in August. Saint John's drop was 4.2%. Prices in PEI and St. John's have held up so far.

Prices remain high last year's levels

MLS HPI property prices are still above year-ago levels almost everywhere in the country, despite a considerable decline since spring. Only Kitchener-Waterloo is falling (-1.7%). Prices are often higher, especially in Atlantic Canada. Many homebuyers faced gloomy prospects. The modest recovery from prior huge price increases is small comfort as increased interest rates reduce affordability.

Correction is still ongoing

The expectation that the Bank of Canada will increase its interest rates before year's end will keep buyers on the alert. Higher interest rates would exclude more buyers and reduce the size of mortgages many can now get. It is expected that Canadian house resales will drop 23% this year and 15% in 2023.

Forecasting bottom the next spring

By early 2023, it is expected the market will react to higher rates. Any recovery will take a few months to improve demand-supply dynamics, putting prices near spring across Canada. The benchmark prices will drop 14% from the historic high. On a provincial level, Ontario and British Columbia will experience the largest peak-to-trough decreases at -16%, and Alberta and Saskatchewan at -4%.

If you have been considering Buying, Selling, or Renting your home or have avoided the notion due to a negative experience, let Arsh Syed, a Real Estate Agent in Toronto, manage the deal.

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For further information about his services, please visit 

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