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A housing complex being built on William Jackson Dr., in Pickering, on Nov. 14.Eduardo Lima/The Globe and Mail

Canada’s housing downturn decelerated in October, with home sales rising slightly and prices levelling out. But the volume of activity was depressed and economists warned that home prices would continue to fall as borrowing costs soar.

The number of resales rose 1.3 per cent from September to October, according to the Canadian Real Estate Association (CREA). That was the first month-over-month rise since February, when Canada’s central bank was about to embark on its campaign to slash the supply of cheap money.

Over the same period, the national home price index fell 1.2 per cent to $777,200 after removing seasonal influences, according to CREA. That was the smallest month-over-month drop since June, though the eighth decline in as many months.

Over all, October’s activity was 15 per cent below the prepandemic monthly average. Bank of Montreal senior economist Robert Kavcic described the Canadian housing market as depressed and forecast further price decreases given the Bank of Canada’s plan to continue raising borrowing costs to fight inflation.

“The direction of prices is still lower,” Mr. Kavcic said in a research note.

The central bank’s key interest rate is now 3.75 per cent, up from 0.25 per cent in early March. That has contributed to pricier loans. The average mortgage rate is now about 5 per cent, compared with less than 2 per cent during the early days of the pandemic. “The depth and duration will ultimately be dictated by where interest rates level off, and how the job market holds up in 2023,” Mr. Kavcic said.

Although new mortgage costs have doubled over the past year, many homeowners are still locked in with fixed-rate mortgages, so their monthly payments and interest costs will remain the same over the term of their loans. As well, the majority of variable-rate mortgage holders have fixed monthly payments that see more money directed to interest when interest rates increase. The monthly payment typically only goes up when the borrower’s fixed payment no longer covers the interest. So far, that has delayed the fallout from higher borrowing costs.

CREA said the number of new listings was up 2.2 per cent from September to October, but that’s still below the 10-year average, suggesting homeowners are weathering the higher interest rates and still making their mortgage payments.

“There’s just not a lot of forced selling out there at this stage, which can really exacerbate or speed up a price correction,” Mr. Kavcic said in his note.

Toronto-Dominion Bank economist Rishi Sondhi said some homeowners may have to sell if they can’t make their monthly mortgage payments. “If a sufficiently large number of these homeowners end up listing their homes, it could downwardly pressure prices by more than we anticipate,” he said in a research note.

Compared with October of last year, the national home price index is down 0.4 per cent. Since the peak in February, the home price index is down 10 per cent on a seasonally adjusted basis. The last time the index recorded a decline of that magnitude was during the global financial crisis, when the typical home price fell 9.1 per cent from March, 2008, to March, 2009. (The index excludes the high end of the market and is the industry’s preferred measure of home prices.)