Home prices slow further while rents increase in Canada

Home prices continued to slow further in September. This is according to data released by the Canadian Real Estate Association (CREA). Home sales between August and September were down 3.9%. Looking back one year to September 2021, home sales were down 32.2%

“September was another month of lower sales activity, although, with many sellers also opting to play the waiting game, the market remains on the tighter side of balanced market territory,” said Jill Oudil, Chair of CREA. “It makes for an interesting dynamic, one that doesn’t really have many historical precedents. The market has changed so much in the last year, and the adjustment to higher borrowing costs is still underway” continued Oudil.

Many sellers are more tentative about putting their homes on the market. Their concern is that their listing would not fetch the price other homes in the neighborhood did just a few months prior. Meanwhile, buyers are facing affordability challenges or concerns that the market still has a way to drop. This is causing a “stalemate” between both buyers and sellers.

Robert Kavcic, a senior economist with BMO Capital Markets, explained this “stalemate” further.

"Buyers can't qualify for or afford early-year prices and probably don't want to catch falling knives anyway.”

"But, sellers are able to hold out for better market conditions or, in the case of investors, put units on the rental market. In other words, the market is just not clearing right now – hence the lack of transaction volumes."

Kavcic foresees further pain this year as more interest rate hikes are still expected. “With mortgage rates across the spectrum set to push above five percent as the Bank of Canada tightens further, this downward price discovery is probably going to persist well into next year, and anyone holding out for better market conditions is going to need a stroke of luck."

These market conditions have created a perfect storm for the rental market. The rental market saw its highest year-over-year increase in prices in September since April 2019. With homeownership a bridge too far, renting has become the only viable option for many Canadians.

There is, however, an expectation that the rental market could cool off over the next few months. Rentals.ca have reported a decline in interest for the rentals listed on their website, while rental demand is typically lower between November and February.