Posthaste: Housing market faces ‘bumpy’ road amid high interest rates, RBC says

Bank of Canada hikes put brakes on housing rebound, except for in the Prairies

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The Bank of Canada’s latest interest rate hikes appear to have put the brakes on the housing market rebound in many cities and the road ahead for further recovery is expected to be rocky, say economists at the Royal Bank of Canada.

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Recent data released in major real estate markets show housing activity slowed between June and July after the Bank of Canada raised interest rates a ninth and tenth time, according to RBC’s latest state of housing report. The central bank’s key policy rate is now at five per cent, a level not seen since 2001.

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Home sales in June and July fell in Vancouver, Toronto and Ottawa, and prices also lost momentum, RBC said. However, housing markets in the Prairies defied the interest-rate induced slowdown seen in Ontario and British Columbia. Sales gained in Alberta and Saskatchewan in July, with Calgary, Edmonton, Regina and Saskatoon, all firmly in sellers’ market territory.

Meanwhile, RBC said more listings helped ease supply constraints in many markets, part of a trend that has extended for months. As a result, Ontario and B.C.’s housing markets have grown more balanced after a spring squeeze.

If that trend continues, price increases should keep slowing down, especially in Toronto, the economists said. A cooling economy, combined with the high cost of living are also expected to keep a lid on sales and price gains in major housing markets.

“Signs of cooling activity in some of Canada’s largest markets are consistent with our view that the spring rebound was premature and will taper off further amid high interest rates, ongoing affordability issues and a looming recession,” Robert Hogue and Rachel Battaglia said in the report.

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“We think the path ahead is more likely to be slow and bumpy, with the recovery gaining momentum when interest rates come down — a 2024 story.”

Still, the story is a bit different in Calgary. Continued migration from people moving provinces in search of more affordable conditions, combined with increased immigration, have juiced sales and lifted prices. Sales in July rose three per cent from June, and were up more than 15 per cent for the same time last year. The benchmark price of a home has risen 5.7 per cent year over year, “one of the fastest paces in the country,” RBC said. That strength shows no signs of dying down.

“In the absence of further rate hikes this year, we think strong economic momentum, and, importantly, explosive population growth will continue to support a brisk pace of activity through the remainder of this year,” the authors said of Calgary’s housing market.

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Merchandise balance of trade chart

Canada posted its largest trade deficit since 2020 in June as exports fell for the fourth time in five months, Statistics Canada said on Aug 8.

The trade deficit widened to $3.7 billion in June from $2.7 billion in May. Analysts had forecast a deficit of $2.8 billion.

The data supports expectations the Canadian economy slowed significantly in the second quarter, with economists projecting gross domestic product fell 1.2 per cent from 3.1 per cent in the first quarter.

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  • Today’s data: Building permits
  • Earnings: Manulife Financial Corp., Metro Inc., Linamar Corp., CAE Inc., Hydro One Ltd., Brookfield Asset Management Ltd., Lundin Gold Inc., Ballard Power Inc., The Walt Disney Co.

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stock market snapshot Aug, 9, 2023

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  1. The average selling price for a Toronto home increased by 4.2 per cent over last July to reach $1,118,374.

    Toronto housing momentum slows

  2. A house for sale in Calgary.

    Calgary real estate market has busiest July on record

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The price of oil has slumped below pre-COVID levels even as fundamentals tell a different story. Columnist Martin Pelletier says that barring a deep global recession, which doesn’t look likely based on recent economic data, things are lining up for a large and sudden rise in oil prices. And that might mean now is the time to buy.

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Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at [email protected].

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