Photo: James Bombales

An economist with Canada’s biggest bank says the country’s housing-market correction “is officially over.”

In a response to the July home sales data the Canadian Real Estate Association released midway through this month, RBC Senior Economic Robert Hogue had some encouraging words about the state of the market.

“Canada’s housing market correction is over and the recovery is on,” writes Hogue in a Monthly Housing Market Update.

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Sales of previously owned homes increased 12.6 percent in July compared to a year earlier and 3.5 percent from June on a seasonally adjusted basis.

While an increase in Toronto home resales of 23.5 percent garnered a lot of attention, Hogue notes that positive signs were far from limited to Canada’s biggest housing market.

“Slumping markets out west — including Vancouver, Calgary and Edmonton — are now in early stages of a turnaround,” he states.

While it wasn’t so long ago that Vancouver was Canada’s hottest housing market, Calgary and Edmonton are two of the country’s longest-struggling housing markets.

In fact, Edmonton’s home prices have yet to recover to 2007 highs, while it has been nearly five years since Calgary peaked. A weakened Alberta energy sector, which creates jobs that support homebuying activity, has been a headache for markets in the province in past years.

Chart: RBC

But Hogue notes that transactions picked up modestly in both markets last month, and already-strong markets continued to flex.

“Most markets in Quebec and Atlantic Canada have kept going all along so the widespread gains they recorded in July were a continuation of a long-standing trend,” he adds.

“Clearly, there’s growing evidence across Canada that the market has adjusted to the mortgage stress test and other market-cooling measures—thanks in part to a drop in interest rates this year,” says Hogue, predicting “a slight upward trajectory” moving forward.

Hogue isn’t the first to say that it appears Canadians are getting used to the mortgage stress test that was introduced in January 2018 and requires uninsured mortgage borrowers to qualify at a rate 2 percentage points above what their federally regulated lender is offering.

Policymakers have stood on the sidelines after implementing the stress test at the start of last year and most recently hiking the Bank of Canada’s overnight rate, which influences mortgages, this past October.

But if Canada’s housing correction is indeed over, it could create a sticky situation for politicians ahead of the October federal election — especially if July activity is followed up with a few repeat performances, Hogue suggests.

“Whether we get to this or not, the debate is bound to heat up this fall ahead of October’s federal election. We expect housing to be a hot topic,” he says. “The outcome of [the] election has the potential to change the housing policy course in Canada.”

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