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CREA downgrades sales forecast as interest rates weigh on buyers

The Canadian Real Estate Association has downgraded its home sales forecast for this year and next as fewer buyers jump into the market.
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New condo construction is seen on May 15, 2023 in Montreal. THE CANADIAN PRESS/Christinne Muschi

The Canadian Real Estate Association has downgraded its home sales forecast for this year and next as fewer buyers jump into the market.

The association said Friday that it expects 464,239 properties to trade hands this year, a 6.8 per cent decrease from last year. It also now predicts 516,043 being sold in 2024.

In an April forecast, CREA said it expected 492,674 properties to be sold this year, a drop of 1.1 per cent from 2022. Home sales for 2024 were predicted to total 561,090.

The forecast took into account a sales rebound that took shape in most parts of the country in recent months, but also factored in interest rate hikes, which are continuing to weigh on borrowing costs and buyer sentiment.

The combination of conditions have left many markets still hampered by a lack of supply, though the association said prices aren’t bearing the brunt as much as sales.

It now forecasts the national average home price edging down 0.2 per cent from 2022 to $702,409 this year before rising to $723,243 in 2024.

The April forecast pointed to an average price of $670,389 for this year and $702,200 in 2024.

One of the biggest factors weighing on prices are new listings, which in many markets remain below pre-pandemic levels.

“New listings are now catching up to sales, although this isn’t expected to translate into further big gains in activity as some buyers will likely be moving back to the sidelines, as they did in 2022, to wait for additional signals from the Bank of Canada and the data it bases policy on,” the association said in a Friday release.

“Looking further out, there’s also a growing consensus that rates will not just be higher, but likely for longer – well into 2024.”

CREA’s forecast was released at the same time as its national housing figures for June, which showed seasonally-adjusted sales ticked up 1.5 per cent from May to 40,449.

The actual number of sales sat at 50,155, a 4.7 per cent increase from a year earlier.

Meanwhile, the average price reached $709,218, up 6.7 per cent from June 2023. On a seasonally-adjusted basis, it was $709,103, down 0.7 per cent from a year prior.

New listings were down 11.1 per cent from last year to 84,749, but up 5.9 per cent on a seasonally adjusted from the month before to 63,571.

“Housing markets appear to be stabilizing heading into the summer following some big ups and downs over the last year,” CREA chair Larry Cerqua said in a news release.

“Most importantly, the recovery in new listings over the last few months will give buyers more choice and should help to slow price growth over the second half of the year.”

BMO Capital Markets economist Shelly Kaushik saw th June figures as proof that the market is continuing to recover and shrugged off the Bank of Canada’s June rate hike.

“One rate hike was not enough to cool market psychology in June,” she wrote in a note to investors.

Her view was informed by the country notching its fifth straight monthly sales increase with activity levels firmly in the pre-pandemic range.

However, she noted the national sales number masked some regional differences, including a 6.9 per cent drop in Greater Toronto Area home sales, that was more than offset by gains in B.C. and Alberta.

Moving forward, she expected activity to “take a breather in the coming months after (what we believe to be) the bank’s final hike” that came this week.

“The bank is expected to stay on hold for the rest of the year but (we) will be watching closely to see to what degree the housing recovery will feed into broader inflation metrics.”

This report by The Canadian Press was first published July 14, 2023.

Tara Deschamps, The Canadian Press