The Bank of Canada today increased its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is also continuing its policy of quantitative tightening.

Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.

In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline. Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.

CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases. Measures of core inflation remain around 5%. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum. However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched.

Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target. Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.

Courtesy the Bank of Canada

Canada’s housing markets are still squarely in correction mode. The latest results from local real estate boards confirm activity and prices generally remained under intense downward pressure in November. This was entirely expected considering the heavy toll soaring interest rates are taking on buyers from coast to coast. Higher rates are forcing many of them to put their purchase plans on ice and others to house-hunt on a reduced purchasing budget. We think this will continue to be the case into the early part of 2023—conditional on the Bank of Canada halting its rate hiking campaign this month.

For the most part, local market activity is downright soft, at levels far below where they were before the pandemic. Vancouver, the Fraser Valley, Toronto, Hamilton, Ottawa and Montreal are among that group. However, areas of the Prairies (including Calgary and Edmonton) continue to operate above pre-pandemic levels despite the correction that has taken place to date. A stronger provincial economy and rising in-migration are no doubt keeping demand relatively solid in those markets.

Declining price trends are generalized but more advanced in parts of the country that experienced larger appreciation earlier in the pandemic. Toronto, the Fraser Valley and Vancouver have so far shown some of the sharpest drops. We see those trends continuing until demand-supply conditions tighten from current levels. We expect the cyclical bottom for prices to be reached around spring next year—though this is poised to vary market by market.

Toronto area—Quiet period continues

The steep correction may be moderating but is still ongoing at this stage. Home resales fell another 3.8% m/m in November and the composite MLS HPI was down 0.8% m/m—an eighth consecutive drop. Clearly, sharply higher interest rates and the considerable loss of affordability continue to challenge buyers. And we think they will keep the market quiet for some time to come. The surge in interest rates has materially changed the equation for buyers, many of whom may be sidelined for an extended period. It will take further price declines to draw them back in the market. With demand-supply conditions no longer favouring sellers, we believe that’s exactly what’s in the cards. That said, prices have already adjusted significantly since the March peak—the MLS HPI is down 18%, or $245,000 (not seasonally adjusted)—and any further depreciation is likely to be more incremental. Indeed, the monthly rate of decline has slowed noticeably this fall. The picture will differ on a year-over-year basis, though, as comparisons to historically high price points a year ago will drive down annual rate of change meaningfully.

Montreal area—Downturn picks up some velocity

The market has shifted to a lower gear in recent months. This became even more evident in November when home resales slumped an estimated 8% m/m to the lowest level in almost 13 years (excluding the pandemic shutdown). This took place amid an increase in properties put up for sale relative to October (on a seasonally adjusted basis), further easing demand-supply conditions. After sharply appreciating earlier in the pandemic, property values are now on the decline. The MLS HPI dropped sequentially in the five months ending October, and likely did so again in November. The correction is about to reverse the entire appreciation over the past year, leaving price levels below year-ago levels for the first time in more than eight years. The value of single-detached homes is under more intense downward pressure on the Island of Montreal and in Laval where the median price is down 10% and 4% y/y, respectively. We expect the price softening to continue in the near term as higher interest rates keep buyers on the defensive.

Vancouver area—Not out of the woods yet

Activity remains not only soft but fell again last month after a brief pause in October. We estimate the drop in home resales was more than 12% on a seasonally-adjusted basis, bringing the cumulative decline since March at -51%. New listings were also down in November. So demand-supply conditions eased only marginally—remaining on the cusp of a full-blown buyer’s market. This kept property values on a moderate downward track. The MLS HPI fell m/m (-1.5%, unadjusted for seasonality) for the eighth-straight month, slipping below its year-ago level (-0.6%) for the first time in almost three years. The index is off more than 10% since the April peak. We expect the market’s extremely poor affordability will continue to weigh on activity and prices in the near term.

Calgary—Prices correcting (mildly) despite market’s heat

The market is letting some of the steam out of prices but conditions are still hot overall. Home resales continue to hover far above pre-pandemic levels—even rising slightly by estimated 3% m/m (seasonally adjusted) in November. In fact, activity might have been restrained by a sizable drop in new listings (down an estimated 14% m/m). This left even fewer options for buyers who face historically low inventories. Home prices continued to moderate nonetheless. The MLS HPI eased month-over-month for the sixth consecutive time in November. While demand remains robust, soaring interest rates have materially eroded buyers’ budget, which is what we think is at play. Since its peak in May, the area’s price index lost almost 5% in value, representing one of the milder corrections among Canada’s largest markets. We expect higher interest rates will continue to drive prices modestly lower in the near term.

Courtesy RBC 

Residential sales in the city slowed to 1,648 units, a year-over-year decline of 22 per cent, but 12 per cent above the 10-year average.

The pullback in sales over the past six months was not enough to erase gains from earlier in the year as year-to-date sales remain nearly 10 per cent above last year’s record high. The year-to-date sales growth has been driven by a surge in both apartment condominium and row sales.

“Easing sales have been driven mostly by declines in the detached sector of the market,” said CREB® Chief Economist Ann-Marie Lurie. “Higher lending rates are impacting purchasers buying power and limited supply choice in the lower price ranges of the detached market is likely causing many purchasers to place buying decisions on hold.”

A decline in sales was met with a pullback in new listings and inventories fell to the lowest level reported in November since 2005. The pullback in both sales and new listings kept the months of supply relatively tight at below two months. The tightest conditions are occurring in the lower-price ranges as supply growth has mostly been driven by gains in the upper-end of the market.

Despite the lower supply levels, prices have trended down from the peak reached in May of this year. Even with the adjustments that have occurred, November benchmark prices continue to remain nearly nine per cent higher than levels reported last year.

Detached

Detached sales slowed across every price range this month, contributing to the year-over-year decline of nearly 34 per cent and the year-to-date decline of five per cent. On a year-to-date basis, sales have eased for homes priced under $500,000 as the level of new listings in this price range has dropped by over 36 per cent limiting the options for purchasers looking for affordable product.

Meanwhile, new listings and supply selection did improve for higher-priced properties creating more balanced conditions in the upper-end of the market. This has different implications on price pressure in the market.

The benchmark price in November slowed to $619,700, down from the high in May of $648,500. While prices have eased over the past several months, they continue to remain nearly 11 per cent higher than levels reported last year.

Semi-Detached

The pullback in sales this month was enough to cause the year-to-date sales to ease by nearly one per cent compared to last year. Despite the recent declines, year-to-date sales remain 37 per cent above long-term averages for the city.

Easing sales this month were also met with a pullback in new listings, causing further declines in inventory levels and ensuring market conditions remained relatively tight with a month of supply of two months and a sales-to-new-listings ratio of 100 per cent.

Unlike the detached sector, the tight conditions prevented any further retraction in prices this month. In November, the benchmark price reached $562,800, slightly higher than last month and nearly 10 per cent higher than last year’s levels.

Row

Further declines in new listings likely contributed to the slower sales activity this month as the sales-to-new-listings ratio remained high at 99 per cent. Inventory levels fell to 383 units, making it the lowest level of November inventory recorded since the 2013. This low level of inventory ensured that the months of supply remained below two months.

Despite the persistently tight market conditions, prices trended down this month reaching $358,700. While prices have eased from the June high, they are nearly 14 per cent higher than prices reported last November. The strongest price growth was reported in the North East, North and South East districts where prices have risen by over 18 per cent.

Apartment Condominium

Despite a pullback in new listings this month, apartment condominium sales continued to rise, and inventories fell to the lowest November levels seen since 2013. This caused further tightening in market conditions as the sales-to-new-listings ratio pushed above 100 per cent and a months of supply dropped to two months.

Recent tightening in the market has put a pause on price adjustments for apartment condominiums. In November, prices remained relatively stable at $277,000 compared to last month. While prices have reported a year-over-year gain of nearly 10 per cent, prices are still below their previous highs set back in 2014.

REGIONAL MARKET FACTS

Airdrie

November sales eased mostly due to the significant pullback in detached sales. While sales this month are down over last year’s record levels, overall activity is still far stronger than long-term trends and year-to-date sales are still on pace to reach a new record high.

New listings did improve over the previous year, thanks to gains in row, semi and apartment style product. While the growth in new listings did cause November inventories to rise over last year’s low levels, inventory levels remain nearly 40 per cent below long-term trends in the area.

Despite persistently tight conditions, benchmark prices continue to trend down from the record high level reported in April of this year. Despite some adjustments, prices remained over 13 per cent higher than last year’s levels.

Cochrane

Further declines in November sales contributed to the six per cent year-to-date decline in sales. However, with 1,091 sales so far this year, this is still 69 per cent above long-term trends for the town.

Meanwhile, new listings have remained relatively low compared to sales, preventing a more significant shift in inventory levels. In November, inventory levels did rise above the low levels seen last year, but remained 35 per cent below longer term trends for the area.

Following significant gains reported earlier in the year, benchmark prices continue to trend down in November. However, the adjustments did not erase previous gains as the benchmark price remained over 12 per cent higher than levels reported last year.

Okotoks

Both sales and new listings eased in November preventing any significant change to inventory levels. While inventory levels are higher than last year, they remain 54 per cent below long-term trends for the area. Overall year-to-date sales activity has improved over last year and are 41 per cent higher than long-term trends.

As conditions have remained relatively tight this month, we saw a reversal of some of the price adjustments recorded over the previous two months. The benchmark price in November reached $549,100, a two per cent gain compared to last month, and a year-over-year gain of nearly 16 per cent.  

Click here to view the full City of Calgary monthly stats package.

Click here to view the full Calgary region monthly stats package.