National home sales declined in July as mortgages remained relatively expensive for prospective homebuyers who did not rush to take advantage of the Bank of Canada’s recent interest-rate cuts.
The volume of sales fell 0.7 per cent from June to July after removing seasonal factors, according to the Canadian Real Estate Association (CREA). That followed a small bump in sales from May to June after the country’s central bank made its first interest-rate cut in four years.
Although the Bank of Canada reduced its benchmark interest rate in both June and July, would-be buyers have not noticed much of a change in the cost of a new mortgage.
That is because interest-rate changes only have an immediate impact on variable-rate mortgages, not on fixed-rate mortgages – and variable mortgages are currently the more expensive option.
“The reality is that early rate cuts are not providing any affordability relief,” said Robert Kavcic, senior economist at Bank of Montreal in an interview.
Five-year fixed-rate mortgages are being marketed with an interest rate below 5 per cent, according to rate comparison websites. Meanwhile, the variable version has an interest rate above that level.
That means in expensive real estate markets of Ontario and B.C., many prospective buyers are not able to qualify for a large-enough mortgage to buy a property.
Realtors and economists expect buyers to start jumping back into the market only after several more interest-rate cuts. Mr. Kavcic said that if fixed mortgage rates fall closer to 4 per cent, “that’s a level that would likely bring out more buyers.”
Home sales in the major markets of Toronto, Vancouver and Montreal declined month over month. However, some of the smaller markets saw a rise in sales, including in the Hamilton-Burlington region. Local realtors attribute that to growing buyer confidence that interest rates are on their way down.
“That’s getting some of them to pull the trigger,” Mike Heddle, broker with Royal LePage State Realty, who has worked in real estate in the Hamilton region for nearly two decades, said in an interview.
For much of this year, more homeowners have been putting their properties up for sale. Across the country, new listings rose 0.9 per cent from June to July, according to CREA. In the Toronto region, the country’s largest real estate market, the volume of active listings is at its highest level since the 2008-09 global financial crisis, according to the local real estate board.
Nevertheless, realtors and economists view the market as stable with home prices holding steady. The home price index, a measure of the typical home price, was $718,700 in July. That was 0.2-per-cent higher than June on a seasonally adjusted basis.