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CANADA: Housing Slowdown Has Had Minimal Impact On Prices To Date (1/3)

MARKET INSIGHT
  • The Bank of Canada’s 75bp hike to 3.25% last week took its policy rate into restrictive territory. It sees further hikes as being needed whilst assessing the effects of tighter monetary policy as they work through the economy.
  • With household debt hovering just off extremely elevated highs of 185% of disposable income (link), housing will continue to be a sensitive area for assessing this passthrough.
  • Existing home sales have fallen to 10% below pre-pandemic averages and are starting to correct for the tightness in the housing market - which the Bank currently sees as “pulling back as anticipated”.
  • However, the tightness of sales compared to the stock rather than flow of inventories has helped limit the decline in house prices to just 7.5% from the peak whilst remaining 40% above Feb’20 levels, but as BMO point out, mortgage pre-approvals are sheltering borrowers from the latest 175bp of hikes since July and with at least a further 50bps expected to come.

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  • The Bank of Canada’s 75bp hike to 3.25% last week took its policy rate into restrictive territory. It sees further hikes as being needed whilst assessing the effects of tighter monetary policy as they work through the economy.
  • With household debt hovering just off extremely elevated highs of 185% of disposable income (link), housing will continue to be a sensitive area for assessing this passthrough.
  • Existing home sales have fallen to 10% below pre-pandemic averages and are starting to correct for the tightness in the housing market - which the Bank currently sees as “pulling back as anticipated”.
  • However, the tightness of sales compared to the stock rather than flow of inventories has helped limit the decline in house prices to just 7.5% from the peak whilst remaining 40% above Feb’20 levels, but as BMO point out, mortgage pre-approvals are sheltering borrowers from the latest 175bp of hikes since July and with at least a further 50bps expected to come.