Just as one
car does not make a parade, one month of data does not make a trend. To wit, it
looks like that little sales increase we saw in October was something of a head
fake, because activity started trending back down again in November.
Sales in November
were down 3.3% on a month-over-month basis, rejoining the trend of moderating
sales that began back in February.
The Aggregate
Composite MLS Home Price Index edge down 1.4% on a month over month basis in
November, which as with sales activity, continues the trend that began in the
spring. The national MLS HPI now sits about 11.5% below its peak level but
there are considerable regional differences.
While prices
are down more in Ontario and parts of British Columbia, they have softened to
some degree almost everywhere. Calgary, Regina and Saskatoon stand out as
markets where home prices are barely off their peaks.
With the
Bank of Canada having hiked rates another 50 basis point in early December, I
don’t expect things to turn a corner in any material way in the near future.
That said, it’s worth pointing out those rate hikes are likely almost done at
this point.
That could
pull some variable rate borrowers off the sidelines once it’s clear to all that
we’re at a top for interest rates and we’re not going back to the rates of the
1970s and desirable new property listing in the spring.
But as far
as getting back to “normal”, the bigger question for housing markets is not so
much where the top or “terminal rate” will be, how long it will stay there, or
when will rates start coming back town? It’s when will rates be back at lower
levels? Most fundamental factors needed for the market to take off again are
still out there.
The Bank doesn’t
say what they think the path for interest rates will look like, but they do
have a forecast for inflation, and inflation is what guides their interest rate
decisions. They currently project inflation will be back at around 3% (year-over-year)
by the end of 2023 and to fully return to the 2% target by the end of 2024.
That said,
they won’t need to keep their foot fully on the brakes until then. Once inflation
is back at target the Bank will want their benchmark rate to be back in the “neutral
range” of 2% to 3%, or about halfway between the COVID-19 emergency lows and
the inflation fighting mode we’re experiencing today.
All of which
is to say, we could easily see rate cuts begin in 2023. As I stated above, an
eventual rate cut could also be the signal many variable rate borrowers are
waiting for to jump back into the market.
But for many
first-time home buyers, passing the stress test may require them to wait, not just
until rates have started to decline, but until they have declined quite a bit. That’s
more likely to be a 2024 story than a 2023 one.
Source By:
CREA