A new nationwide survey shows the housing market is beginning to cool down.
According to the Royal LePage House Price Survey released today (July 13), the aggregate price of a home in Canada increased 12.1 per cent year-over-year to $815,000 in the second quarter of 2022.
On a quarterly basis, the aggregate price — which is calculated using a weighted average of the median values of all housing types collected — of a home in Canada decreased 4.9 per cent in the second quarter after reaching record year-over-year highs in the first quarter of 2022, which real estate experts say is reflective of softening home prices in markets that saw exceptional price growth during the pandemic.
The second quarter of 2022 is the first quarter in more than three years (since Q1 2019) to post a quarter-over-quarter decline in home prices, and Royal LePage is forecasting that the aggregate price of a home in Canada will increase five per cent in the fourth quarter of this year, compared to the same quarter last year. The forecast has been revised downward from the previous quarter following more aggressive than expected interest rate hikes by the Bank of Canada, resulting in an expected temporary drop in demand in parts of southern Ontario.
Locally, the aggregate price of a home in Barrie increased by 16.4 per cent year-over-year, however on a quarterly basis, the aggregate price of a home in the city decreased by 6.3 per cent to $887,400 in the second quarter.
Broken out by housing type, the median price of a single-family detached home in Barrie decreased 6.4 per cent to $807,500 while the median price of a condominium decreased 4.6 per cent over last quarter to $483,200.
“Some of the heat that was driving the market cooled during the quarter as rising interest rates coupled with economic uncertainty undermined consumer confidence and pushed buyers to the sidelines,” Royal LePage president and CEO Phil Soper said in a news release. “We have significantly reduced our outlook for 2022, however home prices are still forecast to end the year higher than 2021 and well above pre-pandemic norms.”
Following record price gains across the country, numerous markets in southern Ontario — specifically those that saw some of the highest price appreciation over the last two years — experienced a second quarter decline, noted Soper, adding he expects this highly unusual downward movement in home values to be short-lived as the country’s chronic housing shortage has not been resolved.
“Barring a sharp increase in the inventory of properties for sale in this country, which seems unlikely given our exceptionally low level of unemployment, growing population and minuscule rate of mortgage default, we expect that the second quarter produced most of the price declines we will see this cycle,” he added.
The Royal LePage National House Price Composite is compiled from proprietary property data, nationally and in 62 of the nation’s largest real estate markets. When broken out by housing type, the national median price of a single-family detached home rose 12.4 per cent year-over-year to $859,500, while the median price of a condominium increased 12.2 per cent year-over-year to $589,000.
Price data, which includes both resale and new build, is provided by Royal LePage’s sister company RPS Real Property Solutions, a leading Canadian real estate valuation company.
Supporting the expectation that resale home prices will hold their value for the remainder of 2022 is continued household formation from peak millennials who are reaching traditional home-buying age, high levels of immigration, a healthy job market and the high construction cost of new homes. Since 1980, there have only been seven instances of a three-month decline in resale home prices of 10 per cent or more, with the most recent instance occurring in May 2022.
“We don’t expect to see much movement in housing values through the balance of the year,” added Soper. “Canada is experiencing strong growth in household formation, so positive economic news, such as a signal that rates have reached a level where inflation can be managed, should trigger a return to rising property values. The small percentage of consumers who purchased properties at 2022’s February/March peak will have seen a short-term decline in the value of their homes, but there is little doubt they will soon make up that lost ground.”
Royal LePage says it is also providing caution to policy-makers who may see growing inventory as a sign that Canada’s housing supply crisis has become less urgent compared to election periods when Canadians from coast to coast expressed concern and sought action to improve the supply of housing.
“Although demand has temporarily weakened, Royal LePage is concerned that this short-term reprise from rapidly rising home prices may cause decision makers to shift their attention to other issues, thinking Canada’s housing supply crisis can wait — it cannot,” he noted, adding he believes the current market correction will create pent-up demand. “A growing domestic buyer pipeline coupled with the need to house hundreds of thousands of new Canadians threatens to far outstrip the tepid pace of new home construction.”
“The city of Toronto and the greater region, along with many secondary cities in the Golden Horseshoe, have seen housing demand slow in recent months as many buyers take a step back in an attempt to time the market,” said Karen Yolevski, chief operating officer with Royal LePage Real Estate Services Ltd. “Buyer behaviour has shifted. They are in a wait-and-see pattern, assessing the impact of further expected interest rate hikes and rising inflation. For the first time since the start of the pandemic, the real estate market is experiencing a more normal summer slowdown in activity.”
Yolevski noted the softening market is providing a rare opportunity to first-time buyers who have been unable to transact over the last two years. It’s also creating an opportunity for renters who are considering buying, as purchasing has become slightly more attractive.
“We’ve reached a tipping point for renters, as rental rates continue to increase and inventory in the resale market rises,” she said. “Those who are able to save enough of a down payment may feel they have more choice in today’s market.”