Could the worst be over for Canada’s biggest housing market?

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Regional real estate reports out last week showed Canada’s housing markets continue to deflate under the weight of rising interest rates.No surprise there. The Bank of Canada has hiked rates three and a half percentage points since March, thoroughly dousing the nation’s overheated housing market. And more hikes are expected.Sales in most markets are now well below pre-pandemic levels and prices continue to slide. Still RBC economist Robert Hogue noticed “interesting nuances” in some of last week’s reports.In Toronto, Canada’s biggest housing market, there are signs that the sharp decline of recent months may be stabilizing, wrote Hogue in a recent note.Sales on a seasonally-adjusted basis were just about flat between September and October. And while rising rates have cooled demand there is no sign they are heating up supply, he said.

“So far there’s no indications higher rates are triggering any distressed selling wave,” said Hogue.

The decline in prices is also slowing. Hogue said the composite MLS Home Price Index fell for the seventh straight time in October from the month before. But the 1.1 per cent drop is less than a third of the 3.4 per cent average fall between April and August.

Torontonians might take some comfort in this. Since the March peak in this market, prices have now fallen 18 per cent or $237,000, wiping out almost half of the pandemic gains.

Meanwhile in Montreal, “the downturn isn’t letting up,” said Hogue. More buyers are staying out of the market, inventories are rising and prices keep heading south. RBC estimates sales dropped 2.6 per cent in October from the month before, but that too is less than the average of 7 per cent in the previous three months.

Calgary is one of the few markets in Canada that has remained well above pre-pandemic levels. RBC estimates that sales here actually increased by almost 5 per cent month over month in October. Prices have come down, but the 4.2 per cent decline since the peak in May is a fraction of the correction seen in other markets.

Across Canada price declines appear to be slowing, said Hogue. Nonetheless, “whether activity is stabilizing, will soon stabilize or slump further, our view is the market will stay generally soft over the coming months.”

RBC does not expect Canada’s housing to hit bottom until next spring at which time the national benchmark price will have dropped 14 per cent from (quarterly) peak to trough.

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