Canadian Real Estate Prices Slip, Lower Peaks Print Bearish Sign
The comments below are an edited and abridged synopsis of an article by Daniel Wong, Better Dwelling
Last month, Canadian real estate prices continued their gradual decline, showing signs of a cooling market. According to data from the Canadian Real Estate Association (CREA), the composite benchmark price for a typical home fell by 0.8% (-$5,800) in July, settling at $724,800. This marks a 3.9% drop (-$29,100) compared to the same month last year. While the decline isn’t drastic, it reflects a steady weakening in the market, with home prices reverting to levels seen three years ago.
The trend of lower seasonal peaks indicates waning demand. Home prices have reached lower highs over the past three peaks, a classic sign that fewer buyers are willing to pay the previously elevated prices. This shrinking buyer pool suggests the end of a period of market exuberance, where prices were pushed higher by speculative demand. The current market dynamics point to exhausted buyer enthusiasm, with fewer qualified individuals entering the market.
Annual growth in home prices has slowed for six consecutive months, with July marking the weakest growth rate since June 2023. Though the market hasn’t entered a full-blown crash, it is firmly in correction territory. The benchmark price is now 14.9% (-$127,200) below the record high set in March 2022, highlighting the extent of the market’s pullback. However, despite this decline, the typical home remains out of reach for many households, due to the significant price surge that occurred during the height of the market.
Real estate prices are expected to remain under pressure as demand softens. According to BMO, demand is likely to stay weak until interest rates drop further. Without stronger demand, the downward trend in prices is expected to persist in the near term.
In summary, Canadian real estate prices are experiencing a gradual correction, marked by slowing growth and lower peaks. Demand remains weak due to elevated prices and rising interest rates, and without significant rate cuts, the market is unlikely to see a swift recovery. For now, the market’s downward trend appears to be entrenched, with little indication of a reversal on the horizon.