Canadian Housing Market
The Canadian housing market has seen significant growth and volatility in recent years.
In the years leading up to the pandemic, Canada’s real estate market experienced a prolonged period of growth, driven in part by low interest rates and a strong economy. However, the COVID-19 pandemic has had a significant impact on the housing market, causing a slowdown in activity as well as changes in buyer behavior.
As the economy began to recover in 2021, the housing market saw a renewed demand for homes and strong sales activity. This is mostly driven by the low-interest rate, which makes borrowing more affordable, and People moving to suburban and rural areas looking for more space, causing a lack of inventory in those areas and increase in demand.
The Greater Toronto Area (GTA) and the Greater Vancouver Area (GVA) are two of the most active and expensive housing markets in Canada. The average price of a home in these regions has risen significantly in recent years, and in some cases, has exceeded pre-pandemic levels. However, other markets across the country have seen more modest growth and remain more affordable.
The Canadian government has implemented a number of measures to address the housing market and affordability, including increasing the minimum down payment for homes over $500,000 and implementing a “stress test” for borrowers to ensure they can handle higher interest rates. However, these measures have not had a significant impact on the overall market and have faced criticism from industry experts.
When interest rates rise, the cost of borrowing money becomes more expensive. This can make it more difficult for people to afford to buy a home, as the monthly mortgage payments will be higher. This can lead to a decrease in demand for homes, which can cause home prices to fall. Additionally, rising interest rates can also make it more expensive for homeowners to refinance their existing mortgages, which can make it harder for them to lower their monthly payments. However the effect of Interest rate on housing market can be different and in certain cases, an increase in rates can have a positive effect on the market by slowing down price inflation.
2022 Housing Statistics
As a result of rising interest rates and slowing demand in recent months, in November 2022, the average home price in Canada was $632,802, which was a decrease of 2% from the previous month and 12% lower compared to the same month the previous year. Nationally, sales during November 2022 were down 39% year-over-year to 30,135 transactions. Factors that have spooked Canadian home buyers have been rapidly rising Canadian mortgage rates, brought about by Bank of Canada rate hikes. The effect of this can be seen in prime rates, which have soared from 2.45% at the start of 2022 to 6.45% as of December 2022. While the average Canadian home price is down 12% year-over-year, the performance of housing markets across the country has been mixed. Some areas continued to see declines in home prices and sales, while others experienced increases on a monthly basis. In Ontario, the average home price fell to $829,934 in November 2022, a small drop of 0.6% month-over-month that continues Ontario’s decline in home prices. Toronto housing market has seen a collapse in sales volume as buyers retreat from one of Canada’s most expensive housing markets. The average home sold price in the GTA was $1,079,395 for November 2022, representing a decrease of 7% year-over-year. On the other hand, Home prices in the Maritimes haven’t seen the same level of price declines as some other provinces. Newfoundland and New Brunswick’s average home price increased by 5% and 9% respectively compared to last year.
Does a Declining Housing Market Affect Stocks?
Decreasing home prices can potentially have an impact on the stock market, as the performance of certain sectors, such as construction and real estate companies, may be affected by changes in the housing market. Additionally, if home prices continue to decline, it could lead to a decline in consumer confidence, which could lead to a decrease in consumer spending and economic growth.
Decrease in home prices may have negative effect on home builders and construction company’s stock, as decreased demand and lower prices can lead to a decline in their revenues and profits. Similarly, real estate investment trusts and home furnishing stocks can also be affected by the decline of housing prices.
Banks and other financial institutions that hold mortgages and other housing-related assets may also be negatively impacted by decreasing home prices, as the value of those assets declines.
On the other hand, decreasing home prices can be beneficial for some sectors, such as rental properties, which can become more affordable for renters, leading to an increase in demand for rental housing and potentially boosting the performance of real estate investment trusts and other companies that focus on rental properties.
It’s important to note that the relationship between housing market and stocks is not always clear and direct. The impact on the stock market can be moderated by many other factors such as the overall performance of the economy, the level of interest rates, the health of the financial system.