Canadian House Prices Continue to Tank-Recession on Way

Canadian Home Builders: Examples: Brookfield Residential Properties Inc. (BRP), Mattamy Homes Limited Reasoning: Directly linked to the home building industry, these companies may face challenges such as reduced demand for new housing and declining property values. Building Materials Manufacturers - Canadian: Examples: Cascades Inc. (CAS), Canfor Corporation (CFP) Reasoning: A slowdown in home construction could lead to decreased demand for building materials, affecting the revenue of manufacturers. Real Estate Investment Trusts (REITs) - Canadian Residential: Examples: Canadian Apartment Properties REIT (CAR.UN), Killam Apartment REIT (KMP.UN) Reasoning: A decline in home building could impact the demand for rental properties, affecting the revenues and profitability of residential-focused REITs. Canadian Banks with Mortgage Exposure: Examples: Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD) Reasoning: Banks with significant exposure to the mortgage market may face challenges if there's a rise in mortgage delinquencies and a slowdown in lending activity. Canadian Home Improvement Retailers: Examples: RONA Inc., Home Hardware Stores Limited Reasoning: Reduced construction and home improvement activities could lead to lower demand for materials and supplies, impacting the revenue of Canadian home improvement retailers. Canadian Real Estate Developers: Examples: Brookfield Asset Management Inc. (BAM), First Capital Real Estate Investment Trust (FCR.UN) Reasoning: Real estate developers focusing on residential or mixed-use projects may experience challenges in selling properties or securing tenants during a downturn. Canadian Mortgage Insurance Companies: Examples: Genworth MI Canada Inc. (MIC), Canada Guaranty Mortgage Insurance Company Reasoning: A slowdown in the housing market could increase the risk of mortgage defaults, affecting mortgage insurers. Canadian Construction and Engineering Companies: Examples: Aecon Group Inc. (ARE), SNC-Lavalin Group Inc. (SNC) Reasoning: Construction companies involved in major infrastructure projects may face reduced contracts and lower revenues during a Canadian home builder downturn. Canadian Home Furnishing and Appliance Retailers: Examples: Leon's Furniture Limited (LNF), The Brick Ltd. Reasoning: Lower home sales and construction activity can lead to decreased demand for home furnishings and appliances in the Canadian market.

Canadian home prices fell by the most on record in 2022, as rapidly rising interest rates forced a market adjustment that may have further to go. The country’s benchmark home price fell 1.6% in December to C$730,600, bringing the total decrease since February’s peak to 13.2%, the Canadian Real Estate Association said Monday. The decline was the biggest peak-to-trough falloff since the group started compiling the data in 2005. Last year also saw the biggest price decline for a calendar year since records began, with a 7.5% drop overall.

With the economy in danger of entering a recession, and the Bank of Canada warning of more rate hikes to counter persistent inflation, the housing market may face continued pressure in the coming months. A record number of buyers used floating-rate debt for purchases during Canada’s pandemic-era real estate boom, and those borrowers may come under increasing strain if mortgage costs remain high. Job losses from an economic slowdown also would make it harder for people to keep up with loan payments and stay in their homes.

Economists predict that Canada will enter a recession in the first part of this year. “As we look ahead to the crucial spring selling season, the all-important question is who will emerge from hibernation in greater force — buyers or sellers?” Douglas Porter, chief economist at the Bank of Montreal, said in a note to clients commenting on the new sales data. “We suspect that the market will still be digesting the rapid run-up in interest rates, and that buyers will be more reluctant to re-emerge, keeping prices under pressure for some time yet.”

The housing slump so far has largely been driven by a pullback among buyers who’ve been priced out due to higher interest rates. The number of transactions in December was down 39% on a non-seasonally adjusted basis from last year, when the market was approaching its peak and before interest rates started rising. Despite the past year’s decline, prices rose so fast during the pandemic buying frenzy that the national benchmark in December remained 33% higher than it was three years earlier. A report last month by Royal Bank of Canada showed that for the typical buyer dependent on a mortgage, housing affordability deteriorated to its worst level ever as mortgage rates rose with prices still elevated.

 

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