Canadian real estate prices are falling about as fast as they climbed earlier this year. BMO Capital Markets long maintained Canada didn’t have a housing shortage but an excess of exuberance. As price gains slow, they are proven right as more people now expect prices to fall instead of rise. Following today’s rate hike, the bank sees the last of Canada’s real estate bulls going extinct.
More People Expect Canadian Real Estate Prices To Fall Than Rise
A new Nanos poll reveals Canadians are quickly turning into real estate bears. Just 30% of Canadians expect real estate prices to rise, down from 70% at the boom’s peak. Meanwhile, BMO found that 33.3% feel prices will fall, up from the low of 5%, or “basically no one,” explains Robert Kavcic, a senior economist with the bank.
Much like the Bank of Canada (BoC) argues for inflation, sentiment influences price. If people believe prices will climb, they’re more easily convinced to pay higher prices. If they think prices will fall, they’re more likely to defer their purchase until it stops falling.
The Speculative Psychology Around Canadian Real Estate Is Fading
BMO is among many organizations saying we’re experiencing excess demand due to low rates. Speculative psychology, where buyers are paying higher prices with the expectation of prices continuing to rise at a breakneck speed, for no reason other than it always does. This is clear from the significant share of investors we’ve seen since rates were cut partly to help spark more investment in housing.
“We’ve argued all along that there was a major behavioral aspect to what was happening in Canadian housing, where acute price gains were not driven by supply shortages, but FOMO, speculation and investment activity,” says Kavcic.
“Indeed, the proof is that even just an initial nudge in interest rates was enough to crack expectations and trigger a correction.”
The bank sees today’s rate hike, which they expected to be smaller than it was, to knock out any of the remaining exuberance in the market.
2.5 per cent bank rates won’t affect inflation that realistically is running north of 10 per cent Another not so minor issue is once prices go up they rarely go down
Agreed, companies are already laying people off. Starting at the luxury stuff like flights (on top of having trouble finding baggage handlers at $16CAD/hr. That’s half of what’s needed to have a decent living in this country. Two people working would bring annual income to 62k CAD/yr. Half of what the median incomes are (my partner and I make about 60k each and the max we qualify for is 500k). So, that so many people can qualify for a million-dollar loan is well…fraudulent. Strap in and get ready for the rollercoaster ride.
That was in May. The title suggesting “still” is a bit misleading.
On June 1, BOC raised rates 50 bps. ON July 13, the BOC raised rates 100bps.
Variable rate mortgages 1.50 higher in 45 days.
The volume going into fixed rate mortgages will be quickly increasing.
Prices are falling in parts of the country, but most are still up for the year. It is not a catastrophe, and in fact house prices are still rising in some parts of the west.
Building is up in many parts of BC and Alberta.
Try to make your story a little more balanced.
Yes, they’re not balanced by reporting on what the bank says but you leaving out that high ratio mortgage borrowers in some cities are now underwater and new developments are failing appraisals is completely balanced.
More real estate bulls need to take an english class or see a psychiatrist, or something. The subject of the article is clearly what a bank is telling institutions, not to soften any blow your ego gets from finding out what investors are saying behind closed doors.
well, from the banks stand point, if they have 30 billion in loans in the GTA, and 5 billion in AB, they are going to look at the GTA #s closer. Don’t know how representative my made up numbers are, but you see my point
I live in Alberta. This is nonsense. Listings ramping up, price cuts everywhere. No or few new builds in my area Edmonton, SHERWOOD Park, Saint Alberta.
Edmonton prices are now slightly below the peak last month. No one is paying 30% and not seeing home prices fall. It’s ridiculous and hilarious that anyone thinks that’s possible.
The societal catastrophe is probably great if prices continue to rise, not if they fall. Also, please site your data source(s) for house prices still rising regionally. (Pro tip: a post card from your neighborhood real estate agent doesn’t count).
10 year moving monthly sales average we are below trend so hot unaffordable markets are bearish but more affordable markets are still moving up
Banks like the idea of indebting customers in a property that doesn’t provide investment in new technologies, innovation, intellectual property and the subsequent value of well-paying jobs/careers.
Competing on the global stage is hindered by runaway living costs, where the Banks seem to be the benefactor (CPI is over 25% shelter). But the Bank will give you less than 2% in your savings account while charging around 20% on unpaid credit card balances.
The Bank I visit maybe once a month occupies more real estate than most significant corporations. Guess who is paying for this redundancy?
People have an amazing ability to spot trends after they’re over
We do have a housing shortage…only now it’s rentals.
My ROI on my POS investment rental is going to take a hit.