The average selling price of a Canadian home was $688,000 last month, a figure that has risen by more than 38 per cent in the past year.
The Canadian Real Estate Association (CREA), which represents real estate agents across the country, said in a news release Tuesday that while prices are still up sharply from a year ago, the gains appear to be moderating.
The $688,000 figure is down from $696,000 in April and just over $716,000 in March, which suggests that while comparisons to the early days of COVID show a red-hot market, it is in fact cooling.
“While housing markets across Canada remain very active, we now have two months of moderating activity in the books, and that goes for demand, supply and prices,” CREA chair Cliff Stevenson said.
Aside from prices, the volume of homes sold also seems to be cooling compared to the peak it hit in March 2021.
More than 56,000 homes were sold last month, which was more than twice as many as sold in the same month a year earlier. But last May was the slowest May for home sales on record, as sales were drastically curbed by the nascent COVID-19 pandemic.
Evidence of ‘offer fatigue’
Home sales hit nearly 70,000 in March, but in the two months since, have fallen by 11 and now seven per cent. Sales fell in May in every province.
TD Bank economist Rishi Sondhi said May’s data clearly shows a slowdown, but only a slight one from a very elevated baseline. “Sales activity is unwinding from the stratospheric levels … but is still very strong,” he said.
Ottawa recently implemented new stress test rules designed to make it harder to qualify for a home loan, and those changes are likely to cool the market further. But Sondhi says he doesn’t expect the impact to be dramatic.
“This rule change should have much less impact than in 2018, when the [stress test] was last revised to make qualifying for a mortgage harder,” he said.
CREA says the average selling price can be misleading because it can be skewed by sales of expensive homes in pricey markets such as Toronto and Vancouver. That’s why it tabulates a different number, known as the house price index, which adjusts based on the volume and types of homes sold.
But even the HPI rose by more than 24 per cent in May compared to the same time last year, which is the highest increase on record. But “it is not likely to go much higher at this point,” CREA says, partly because price increases are slowing down on a monthly basis, in Ontario especially.
The slowdown in some Ontario markets is noteworthy mostly because that province drove a lot of the gains on the way up. During the pandemic, mid-sized cities within an hour or two of major hubs such as Toronto were seeing some of the biggest price gains, as buyers from the city headed farther afield in search of more space for their home-buying dollars.
Before the pandemic, a benchmark home in Barrie, Ont., located about 100 kilometres north of Toronto, cost about 57 per cent of what a similar home would cost in downtown Toronto. Today, that home costs 70 per cent of what it would in Toronto, Bank of Montreal economist Robert Kavcic noted.
But that trend seems to be running out of steam now. Seasonally adjusted, average selling prices are now lower in Hamilton, Kitchener and Waterloo, Ont., than they were in March.
“At some point, it doesn’t make as much sense from a relative value perspective to push that far out of the core, and that point might be nearing,” he said.
“Home sales have backed off from extreme levels seen in recent months, but current activity is still historically strong and fostering outsized price growth.”
He points out that home sales in May were still about a third above the 10-year average level for the month.
“We believe that sales activity will continue to gradually cool in the year ahead, but it’s going to take higher interest rates to soften the market in a meaningful way.”