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Interest rates and borrowing costs may be surging – but Canadian home prices are continuing to rise at a rapid clip, according to new data.

The latest Teranet-National Bank composite index showed that average prices in the country’s 11 largest census metropolitan areas increased by 1.8% between June and July excluding adjustments – their second strongest monthly increase ever and the index’s fifth monthly jump in a row.

Halifax, Hamilton, Vancouver, and Toronto accounted for the largest proportional monthly growth, a sign that buyers are still eking out opportunity despite tight market conditions and steeper qualifying challenges.

Still, price gains are expected to moderate in the coming months, according to analysis from Royal Bank of Canada (RBC), as interest rates continue to impact affordability and a better supply-demand balance returns with more properties coming to market.

The rise in new listings was a particularly noteworthy trend in July’s housing market, RBC economists Robert Hogue and Rachel Battaglia said in a recent report, with sellers “stepping out of the sidelines in every region of the country.”

Hamilton saw new listings spike by 15.2%, with Kitchener-Waterloo posting a 21.2% surge, London jumping by 19.9% and Toronto, Calgary, and Ottawa all recording single-digit increases.

Nonetheless, those increases arrived “from exceptionally low levels at the start of the year,” Hogue and Battaglia noted, meaning that they “merely reset the bar closer to normal in most instances.”

Have chances of a housing market crash receded in Canada?

The prospect of a severe downturn in the Canadian economy has yet to materialize, and still-robust employment figures indicate that a housing market crash is not currently into the cards, according to the interim chief executive officer of the Appraisal Institute of Canada.

Keith Lancastle (pictured top) told Canadian Mortgage Professional that with the unemployment rate having ticked only slightly upwards in recent months, a full-scale meltdown did not appear likely.

“Even with the slowdown in the economy, we’re not seeing job losses,” he said. “And we know that job losses are typically the thing that starts to trigger people defaulting on mortgages and exiting the housing market. Canadians will go without a lot of things before we don’t pay our mortgage.

“We’ll cancel our Netflix and our Disney Plus before we go short on the mortgage; we’ll sell the car before we go short on the mortgage. So we have a slowdown, but so far the slowdown has not resulted in a significant increase in unemployment.”

Why home prices are unlikely to plummet

Resilient demand will also be boosted by high levels of immigration, Lancastle said, meaning that while activity may not surge, a sizeable reduction in home prices is unlikely to transpire.

“There are some forecasts that are talking about contraction in some of the major markets, but it seems to be in markets where there was a lot of gain during the pandemic,” he said.

“And in fact, in most of those markets, from what I’ve seen it looks like we’re still basically at pre-pandemic levels. If you see a big increase in unemployment, that would be a harbinger of a more pronounced retraction in terms of pricing – but I think the absence of that is probably a suggestion that we’re going to see at least a moderate contraction, if anything.”

It’s also important to apply nuance to particular regions, Lancastle said, with certain areas within those regions seeing higher activity than others – and the popularity of specific property types also rising and falling.

“You can’t even use Southern Ontario as a single market,” he said. “You’ve got the GTA [Greater Toronto Area], which is going to be different again to a place like Peterborough, which saw huge gains. Then you have to further say, ‘Well, where’s the contraction in the GTA? Was it in the condo market? Is it in single-family homes? Is it in the higher-priced stuff or is it in the mid-priced or more entry-level stuff?’

“That’s the biggest thing. You have to look at not only prices, but also the amount of transactions to truly understand [the market].”

Source: Canadian Mortgage Professional