Top 3 Best Realestate news: The Canadian real estate market has suddenly and dramatically cooled. Sales are down 24% for him from this time last year. Average home prices in the country have fallen $179,047 from their peak in February.
And yet, did it really change that much?
“I think it’s like letting the air out of a balloon,” said Colin Chezinski, chief market strategist at SIA Wealth Management. We had to bring it down to something a little more sustainable.”
The prospect of a cooldown has always presented an opportunity for those looking to enter the market. But average Canadian home prices are back at early 2021 levels despite a 20% drop in prices.
What has changed, however, is that the typical Canadian family feels home poor these days. causing the largest decline.
Loss of billions of household net worth
It may be easy to see house prices fall, but unless you’re an owner looking to sell, you’ll say, “It doesn’t affect me.”
However, the reality is that much of Canada’s household wealth is tied to house prices, and the sector itself, still one of the largest contributors to Canada’s GDP, has taken a hit.
Canadian household net worth (defined as all assets minus all liabilities) registered a staggering $990.1 billion decline in April, May, and June, according to Statscan.
“The decline was exacerbated by a $389.8 billion drop in the value of non-financial assets as the streak of property gains that began in late 2018 was halted by the housing market grappling with rapidly rising interest rates.” writes the data. Agency for last week’s release.
The remaining decline in household wealth was due to the stock market crash in the second quarter. (Statscan figures only cover his period through June. The stock market has recovered somewhat since then, but losses in the once-hot housing market have accelerated in the July-August period.) doing.)
When house prices fall, there are knock-on effects on the rest of the economy, “spending on building materials, spending on furniture, spending on all sorts of things,” says BMO senior economist Robert Kavcic. increase.
“A weak housing market will dampen real economic growth and employment growth,” he said.
Homeowners in Canada have felt richer as home values have skyrocketed over the past few decades. They used the ever-increasing housing value as an ATM of sorts to borrow money more and spend more.
Falling values and rising interest rates may cause homeowners to borrow less and spend less.
These rates will also slow the economy in other ways, Kavcic says.
“If your mortgage payments hit $500 a month, or $1,000 a month, you’re quickly eating into discretionary spending that could have been spent elsewhere in the economy,” he told CBC News.
Inflation is not over
Meanwhile, inflation is eroding our purchasing power and dampening wage growth.
Combined, consumers are looking for ways to shrink their spending, and when scaling out across the population, small decisions make a big difference.
“If you don’t go out to lunch, you’ll lose one sale at your local lunch place, and at some point, you’ll likely lose two jobs,” says Kavcic.
He expects difficult days ahead.
Canada’s latest inflation rate is due to be released next week. Major headline figures are expected to slow, reaching 8.1% in June, a 39-year high.
But economists are concerned that core inflation, which removes volatile factors such as gasoline and food, is still rising. It is said that it shows
“[Last week’s U.S.] “Inflation is still high and I don’t know if it has peaked.”
“Even if it does start going down, it could go down much more slowly than that. [Wall Street] I expected. ”
If higher interest rates hurt the economy but inflation persists, central banks, including the Bank of Canada, will have to raise rates more than expected and keep them high for longer than expected, he said.
This means more turmoil for both the stock and buy property markets. This means that household wealth will fall even more than we have seen before.