Canada’s housing market is facing another correction, with home sales declining by 4.1% in August, marking the second consecutive monthly drop and the sharpest decline since the Bank of Canada began raising interest rates in 2022. While the housing market rebounded strongly when the central bank initially paused rate hikes earlier this year, economists believe that this time the headwinds are stronger.
BMO senior economist Robert Kavcic noted that sellers are returning to the market, which was not the case in the spring when new listings were at their lowest since 2003. Additionally, there is a record number of homes under construction that will soon be available, increasing supply.
Furthermore, as more mortgages come up for renewal, there will be increased pressure to sell, especially considering that the Bank of Canada has expressed concerns about households’ ability to service their debt when mortgages are renewed at higher rates. Unlike the spring, there is no mortgage rate relief in sight, as yields remain high.
The economic landscape is also less favorable, with weakening job market indicators and increased income insecurity. Oxford Economics predicts that the housing correction will continue into 2024 as the economy faces a possible recession, leading to job losses and reduced demand for housing.
Average home prices have already fallen, dropping 2.3% in August and erasing much of the spring rebound. Oxford Economics expects home prices to decline by another 5% to 10% by the middle of next year, resulting in an overall drop of 20% to 25% from the market’s peak in 2022.
RBC economists anticipate that cooling in the housing market will persist through the fall due to higher interest rates, affordability challenges, and the looming threat of a recession. A substantial recovery is unlikely until interest rates begin to decrease in 2024.
In global financial news, the International Monetary Fund (IMF) has warned that global debt, although down from its pandemic peak for the second consecutive year, remains on the rise. Total debt reached 238% of global gross domestic product in 2022, up nine percentage points from pre-pandemic levels in 2019. Public debt remains persistently high, declining by only 8 percentage points of GDP over the past two years, eliminating just half of the pandemic-induced spike.
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