Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Friday August 12, 2022
Cooler market helps housing consumers
You may have noticed the house around the corner with the For Sale sign planted on its lawn.
You may have noticed that the house didn’t sell in its first week on the market. Or week two. Three weeks have now passed, and there it still sits. Is it just because it’s summer? Or is it something else? It’s something else.
The correction in the housing market has arrived, as the latest numbers released by various housing groups show. The slowdown is more rapid and dramatic than most predicted. Days on the market are growing; active listings are up.
The most recent housing market forecast from the Royal Bank is predicting a national slump in resales outpacing previous peak-to-trough declines, as the bank phrases it, comparing its predictions of what lies ahead to, say, 1981-’82, or 2008-’09.
As the slowdown in the national housing market gained momentum last month, the average selling price of a home touched $665,850 — a decline of almost 20 per cent since February. Average selling prices have declined each month since February 2022, and are down by 1.8 per cent compared to what they were a year ago.
The Canadian Real Estate Association (CREA), which represents more than 100,000 brokers, agents and salespeople across the country, said in July that the volume of home sales fell by 5.6 per cent during the month, and is down by almost one-quarter compared to last year.
It is worth noting that Ontario is leading the way down, as selling prices in the province’s suburban markets that rose the most during the pandemic are now coming back to earth.
“Activity continues to slow in the face of rising interest rates and uncertainty,” CREA chair Jill Oudil said in a statement.
Naturally enough, these reports are headline generating. It’s human nature to be keenly attentive to such language as “plummet,” or “historic correction,” or images of popping bubbles.
But the more nuanced language tells us what we really need to know. RBC’s predictions, should they come true, translate into what the bank calls “a welcome cooldown following a two-year-long frenzy.” This is a correction, not a collapse, the bank concluded, with its long-range forecast pinning the end of the correction to sometime in the first half of next year.
We can agree that the housing market has been galloping through a prolonged stage of delirium, one in which abnormally low interest rates played a central role. And then came COVID, with the Bank of Canada responding to the economic impacts of the pandemic by lowering its key interest rate to one quarter of a per cent. And we can see how the current environment of rising interest rates, especially the significant 100-basis-point increase to the bank’s benchmark rate last month, are now pulling sharply on the reins.
And, yes, pain will be felt by those homeowners having to renegotiate their mortgages. A further increase to the Bank of Canada’s rate is expected at its next rate setting in a month’s time.
There is an upside. What the data really demonstrates is not price growth, but price moderation. Explosive growth in demand and prices could not continue indefinitely. The apogee of the madness arrived in the form of blind bidding, which we previously argued should not be allowed, and condition-free offers that resulted in some desperate purchasers waiving home inspections only to gaze balefully at previously undetected problems, from creeping mould to sketchy electrical work to sagging floor joists. That’s a lousy surprise outcome when making what for many is the most significant financial decision of their lives.
Where does this leave us? With the balance of power shifting back toward the consumer, that’s where. And with a growing sense that a return to sanity in the real estate market is, at last, upon us. (Hamilton Spectator Editorial)