Canada home sales drop 22% from last year as rates rise

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Real estate for sale in City of Lloydminster following a tour of Gear Energy's well sites near Lloydminster, Saskatchewan August 27, 2015. Amid the corn and canola fields of eastern Saskatchewan, oil foreman Dwayne Roy is doing what Saudi Arabia and fellow OPEC producers are loath to do: shutting the taps on active wells. Inside a six-foot-square wooden shed that houses a basic hydraulic pump, the Gear Energy Ltd employee demonstrates how shutting down a conventional heavy oil well in this lesser-known Canadian oil patch is as simple as flipping a switch. His company has already done so hundreds of times this year, making the Lloydminster industry among the first in the world to yield in a global battle for oil market share that has sent crude prices tumbling to six-year lows. Picture taken August 27, 2015.  REUTERS/Dan Riedlhuber
Canadian house prices dropped again in May, according to CREA. (REUTERS/Dan Riedlhuber)

The Canadian housing market continued to cool in May amid rising interest rates, with the average home price slipping to $711,000.

That's a decline of nearly 11 per cent from March, when the Bank of Canada first started to increase its benchmark interest rate to combat soaring inflation. However, May prices are still up 3.4 per cent from the same time last year.

The Canadian Real Estate Association (CREA) said on Wednesday that national home sales fell 8.6 per cent on a monthly basis in May, a more moderate decline than the 12.6 per cent drop seen in April, bringing activity to pre-COVID levels last seen in the second half of 2019.

The number of transactions last month was 21.7 per cent below the record set in May 2021.

"Ultimately, this has been expected and forecast for some time – a slowdown to more normal levels of sales activity and a flattening out of prices," CREA senior economist Shaun Cathcart said in a statement.

"What is surprising is how fast we got here. With the now very steep expected pace of Bank of Canada rate hikes, and fixed mortgage rates getting way out in front of those, instead of playing out steadily over two years, that cooling off of sales and prices seems to have mostly played out over the last two months."

The Bank of Canada has embarked on an aggressive path to tighten monetary policy in the wake of skyrocketing inflation, which has sent borrowing costs up for Canadians.

BMO senior economist Robert Kavcic said in a research note on Wednesday that "a correction in Canadian housing is well underway across a number of markets."

"Prices will likely be under pressure into next year," Kavcic wrote.

"Eventually, fundamental factors like demographics and rising building costs will put a floor under the resale market, especially in more favourable areas, but it will take time and some price discovery to swallow the interest rate shock."

CREA says sales were down in 75 per cent of all local markets, including B.C.'s Lower Mainland, the Greater Toronto Area (GTA), Ottawa, Edmonton and Calgary.

After stripping out sales in the GTA and Vancouver, Canada's two hottest housing markets, the average national price for a home was $588,500.

The MLS Home Price Index (HPI), which CREA says is a more accurate price comparison than the median or average price, fell by 0.8 per cent on a monthly basis, following a 1.1 per cent decline in April.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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