Housing market slowdown continues, with average selling price down 13% since February

Canada's housing market continued to cool down from its red-hot pandemic pace in May, with the average price of a Canadian home that sold during the month going for $711,000, a decline of more than $100,000 in the past three months.

While May is typically a strong month for home sales, the Canadian Real Estate Association (CREA) said Wednesday that the volume of homes that sold fell precipitously during the month, down by 20 per cent compared with the same period a year ago.

The slowdown means that home sales are now finally back to the level they were at before the COVID-19 pandemic, the realtor group said.

After cooling down in March and April 2020 as the pandemic was unfolding, Canada's housing market has rebounded strongly, with selling prices and sales volumes setting record high after record high for much of the past two years.

But that momentum has shifted noticeably in recent months, as lending rates that were slashed early in the pandemic start to rise, making mortgages more expensive and reducing buyers' purchasing power.

CREA says the average price of a home that sold on its Multiple Listing Service last month went for $711,000. That's down by more than 13 per cent from the all-time high of $816,720 set back in February 2022.

"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's chief economist, Shaun Cathcart, said in a news release.

CREA says the average price figure can be misleading because it is easily skewed by sales in large expensive markets such as Toronto and Vancouver. So it calculates another number, known as the House Price Index (HPI), which it says is a better gauge of the market because it adjusts for the volume and types of housing.

The HPI edged down by 0.8 per cent in the month, CREA says, following a 1.1 per cent decrease in April. But it is still more than 19 per cent higher than it was last year, mostly because of the eye-popping gains seen in late 2021.

The same can be said of the average price figure, which is still 3.4 per cent higher than it was a year ago, despite three monthly declines in a row.

If Toronto and Vancouver are stripped out of the numbers, the average price of a Canadian home that sold in May was $588,500.

The biggest factor driving the national number lower is Ontario, where most markets are seeing significant price declines. Rishi Sondhi, an economist with TD Bank, said there's an interesting regional story playing out beneath the picture of the national market.

"Sales and prices are down disproportionately in Ontario and British Columbia, which suffered severe affordability deterioration during the pandemic," he said, noting that the numbers in the Greater Toronto Area look especially bleak — and that's the part of the country that saw the biggest run-up in prices earlier due largely to investors piling into a rising market.

"It's also likely the case that some GTA buyers purchased their homes before selling their old ones [thinking the market would remain hot] and are now being forced to accept lower prices to complete their transactions. We would, however, expect this dynamic to run its course in relatively short order," Sondhi said.