Posthaste: Forces are gathering against Canada's housing market
More headwinds are barrelling down on Canada’s housing market.
Sales in most major markets weakened in September amid a surge in new listings and softer demand, and now mortgage rates are on the march amid the global bond market rout.
Canadian government bond yields have risen to their highest since the financial crisis in recent days, and this rise could pose a big risk to the economy through its impact on the housing market, said Stephen Brown, deputy chief North America economist for Capital Economics.
Last week five-year bond yields rose to 4.4 per cent. As bond yields lead fixed mortgage rates, the increase implies that the lowest available five-year fixed rate could rise to 6.25 per cent, Brown said.
That’s a 150-basis point increase since April, which Brown says is equivalent to a hit to affordability of about 13 per cent.
Rising mortgage rates will put more buyers on the sidelines, but even before the home price outlook had deteriorated more than Capital economists had expected.
Local real estate board data out this past week show a surge of new listings with fewer buyers in September, putting the average sales-to-new listing ratio across Canada’s largest cities lower than the trough in 2022, when prices were falling, said Brown.
Capital’s current forecast for Canada’s housing market is that prices will stagnate over the next six months, “but, given recent developments, it now seems more likely that they will decline,” said Brown.
Toronto-Dominion Bank economists also see a “more pronounced and extended downturn” for the housing market than they envisioned in June because of rising bond yields.
They now see home sales and prices falling in the last quarter of this year and into 2024. By the first quarter of next
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