Home Prices Fall for 7th Month in Canada on Mortgage-Rate Spike

Canadian home prices dropped for a seventh month in a row in September, and have now declined almost 9% since the peak, as rising borrowing costs keep buyers on the sidelines. 

The benchmark price of a home dipped 1.4% in September compared with the month before to C$766,000 ($557,070), according to data released Friday by the Canadian Real Estate Association. That was a smaller decline than August’s 1.6% drop. 

The benchmark price goes down

Toronto suburbs and smaller cities in southern Ontario that saw huge price jumps during Covid-19 pandemic continue to suffer a correction. In Mississauga, Ontario, the benchmark price is down 13% since February. In Kitchener-Waterloo, about an hour’s drive from Toronto, it’s down 18%. 

But a number of cities, including Calgary, Ottawa and Oakville, Ontario, saw prices rise in September. 

The Bank of Canada is poised to push ahead with at least another 50 basis point interest-rate hike on Oct. 26 in an effort to cool inflation, which is near the highest level since the early 1980s. The rate on variable mortgages -- already above 5% at major commercial banks -- resets when the central bank rate changes.  

The benchmark price in Greater Toronto fell less than the national average with a decline of 0.6% in September on a seasonally-adjusted basis, according to data by CREA. That brought the decline in Canada’s biggest city since February to just above 9%. 

Activity is slow, with sales down 32% from the previous September. 

“The important thing to remember is we’re still in the middle of a period of rapid adjustment, with buyers and sellers trying to feel each other out while a lot of people have had to take their home search plans back to the drawing board,” CREA Senior Economist Shaun Cathcart said in a statement. “Resale markets may remain on the quiet side for some time yet, with the flipside of that coin being even more pressure on rental markets.”

Governor Tiff Macklem and his officials have increased the benchmark rate by three percentage points to 3.25% since March. Trading in overnight swaps markets suggests they’ll keep hiking to as high as 4.25% into next year. 

That, in turn, could continue to pressure the housing market as mortgage costs soar. Total ownership costs, including mortgage payments, have risen to about 60% of a typical household’s income, higher than in the early 1990s, according to a recent report by Royal Bank of Canada economists.