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A for-sale sign is shown in front of a home in Toronto in this file photo.Graeme Roy/The Canadian Press

Canada’s national real estate association has downgraded its outlook for home sales and prices in 2023 for the second time this year as higher borrowing costs deepen the slowdown in the country’s housing market.

The number of home resales fell 1.9 per cent in September over August after removing seasonal influences, with activity dropping in the country’s two most expensive markets of Toronto and Vancouver, according to the Canadian Real Estate Association. It was the third straight month of declines and came as the number of sales listings continued to increase nationally, rising by 6 per cent month over month.

The home price index, which removes the highest priced transactions, was $753,900 in September. That was 0.3 per cent lower than August and the first decrease since March when buyers rushed to make their purchases amid a lull in interest-rate hikes. The market has since slowed with Bank of Canada’s interest-rate hikes in June and July, as well as its message that rates will stay elevated until inflation slows.

“The summer rate hikes also rekindled uncertainty that more were still to come,” CREA said in a release.

That uncertainty along with the months-long slump in activity led the association to revise its forecast down. It now expects 449,614 home resales this year, a 10-per-cent decrease over 2022, and the average price to settle at $680,686, a 3-per-cent decline from the previous year. Overall, the latest forecast is 3 per cent lower than the July outlook.

September is typically a time of the year when sales activity picks up. But CREA said prospective buyers are waiting for more evidence that interest rates will not go higher than the current 5 per cent.

“Expect a quieter than normal winter with all eyes on the Bank of Canada,” association senior economist Shaun Cathcart said in a news release. The central bank has two remaining scheduled interest-rate announcements at the end of October and early December.

Although more homeowners are putting their properties up for sale, Mr. Cathcart said the volume of new listings is only now back at normal levels compared with spring when they were at a 20-year low. “The market is not being flooded with supply,” he said.

Mortgage borrowers have been under increasing stress with the 475-basis-point spike in interest rates over the past 18 months. Three of Canada’s largest lenders have disclosed that about 20 per cent of their residential mortgage borrowers – representing nearly $130-billion in loans – are seeing their balances grow as their monthly payments no longer cover all the interest they owe.

The increase in new listings could be a sign that homeowners are unable to make higher mortgage payments and are forced to sell their properties. But Mr. Cathcart said if these were forced sales, there would typically be more sales along with price drops. “Instead, prices are holding firm almost everywhere and sales are slowing,” he said.

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