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Canada Housing July 2022

Canada: House prices drop at sharpest pace since March 2019 in July

House prices decreased 0.3% month-on-month in July according to the Teranet-National Bank Composite House Price Index, following June’s 1.3% rise and marking the first decline in nearly two years. Meanwhile, house prices increased 14.2% annually in July, down from June’s 16.7% increase. Other housing-related indictors deteriorated in the month: both home sales and the number of newly listed properties fell in July, in a sign that the Bank of Canada’s aggressive rate hikes are having a chilling effect on the real estate market. That said, new housing starts are still strong, rising 1.1% in July from June.

Looking forward, the housing market will continue to lose steam as monetary policy tightens and growth slows. This bodes poorly for residential investment—which was 8% of Canada’s GDP in 2021—and real-estate-related services activity.

Regarding the outlook for housing starts, Rishi Sondhi from TD Economics said:

“Even with the rapidly cooling backdrop for home sales and prices, builders continue to break ground on new homes at a healthy clip. This is because housing starts are responding to past sales activity. The pace of starts will likely remain firm in the near-term, as indicated by elevated permit issuance. However, rising interest rates have increased financing costs for developers, and there have been accounts of builders either cancelling or postponing projects due to cost pressures and worker shortages. We look for starts to trend lower through the remainder of this year, and into 2023, as challenges on the input side and rapidly cooling demand begin to impact supply.”

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