Canadian home sales edged lower in July amid uncertainty over future of borrowing costs

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Canada’s housing market slowed in July, with sales falling for the first time in five months amid uncertainty over the future of borrowing costs.

The number of home resales fell 0.7 per cent in July over the previous month after removing seasonal influences, according to the Canadian Real Estate Association (CREA). Declines in transactions in the Toronto region and the Fraser Valley offset increased activity in Calgary, Edmonton and Montreal.

The national slowdown comes after the Bank of Canada resumed raising interest rates in June and July, and gave no indication that it would take another break, as it did from February to May. That ambiguity has weighed on would-be buyers, who do not know whether mortgages will continue to become more expensive.

“We’re probably looking at another round of ʻback to the sidelines’ for some buyers until there’s a higher level of certainty around interest rates going forward,” CREA senior economist Shaun Cathcart said in a news release.

The average five-year fixed mortgage rate was 5.84 per cent mid-August, according to Mortgagelogic.news, a mortgage analysis firm. In February, 2022, just before the central bank started raising interest rates, it was 3.04 per cent.

Although new listings have continued to rise over the summer, climbing 5.6 per cent from June to July, the volume remains below the average for July, according to CREA. That has contributed to the slower monthly price growth.

CREA’s home price index, which excludes the highest valued properties, was $754,800 in July. That was 1.1 per cent higher than June on a seasonally adjusted basis, but about half the monthly gains seen over the second quarter. “This is in line with sales having levelled off as new listings have been recovering,” CREA said.

The steepest price increases occurred in some of the less populated areas that had seen prices soar during the COVID-19 real estate boom. Those areas include the Chilliwack region in British Columbia, along with the Kawartha Lakes, Tillsonburg and Niagara in Ontario.

Compared with last July, the home price index was down 1.8 per cent, according to CREA data. That is the smallest year-over-year price decline in nearly a year.

In light of the central bank’s June and July interest-rate hikes, CREA downgraded its annual sales forecast last month. The current prediction is a 6.8-per-cent decline over 2022 levels. Its spring outlook had forecast a more modest 1.1-per-cent decline this year.

Mr. Cathcart said sales and price increases are already showing signs of tapering off further in August. With the latest statistics showing the country’s inflation number above the Bank of Canada’s preferred target, economists are predicting borrowing costs will remain relatively high in the near term.

Even if the central bank does not increase its benchmark interest rate above the current 5 per cent at its next scheduled announcement in September, it will not be reducing levels anytime soon, according to economists.

“Meaningful near-term mortgage rate relief looks unlikely,” Robert Kavcic, senior economist with Bank of Montreal, said in a research note.