The London-St. Thomas real estate market is doing well compared to a year ago, but it is on a downward trajectory on a month-over-month basis, according to July data.
What is transpiring in the southwestern Ontario market is representative of what is occurring across the province and the rest of the country. With the Bank of Canada (BoC) making another interest rate hike at the July policy meeting, with the potential for more hikes to come, borrowing costs have been steadily climbing, making it harder for prospective homeowners.
This has been weighing on sales activity and, as a result, sending prices lower from their peaks this past winter. The key question is if the Canadian real estate market will witness a correction or a market crash. Industry observers are opting for the former. What do the statistics say?
London & St. Thomas Real Estate Continues to Moderate
The London-St. Thomas real estate market experienced a 44.7-per-cent decline in residential property sales, totalling 514 units in July, according to the London and St. Thomas Association of REALTORS® (LSTAR). Year-to-date, sales activity has tumbled 24.5 per cent year-over-year, with 5,274 transactions.
Recent association data showed that home sales were down across the board among different property types. Single-family sales tumbled 44.9 per cent to 384 units, townhome transactions slumped 35.9 per cent to 66, and apartment sales plummeted more than 55 per cent to just 39 units.
Growth in housing prices was mixed. The composite MLS® Home Price Index (HPI) benchmark price advanced at an annualized rate of 6.4 per cent to $624,400. However, this was down 3.7 per cent month-over-month. In addition, the average home price surged more than seven per cent year-over-year to $667,323.
Year-to-date, the average price of a home sold in the London-St. Thomas real estate market swelled by nearly 22 per cent from the same time a year ago to $768,350.
Prices for different property types saw substantial gains in July. The average price for a single-family home swelled 5.4 per cent year-over-year to $712,401. Townhomes sold for nearly 11 per cent more than last July, at a little more than $541,000. The average price for an apartment soared close to 20 per cent to $454,421.
“It’s important to note that every home transaction is unique and does not represent activity across the entire marketplace,” said Randy Pawlowski, 2022 LSTAR President, in a statement. “When compared to other cities in Ontario and across Canada, homes in our area continue to remain relatively affordable.”
In an Ontario housing market that is still considerably elevated, finding a residential property that fits within a household’s budget can be a challenge for many.
Meanwhile, the supply of listings improved considerably in the London-St. Thomas real estate market to start the third quarter.
New residential listings increased 10.5 per cent year-over-year, totalling 1,230 units in July. Active residential listings spiked 148 per cent to 1,855 units.
Months of inventory, a gauge of the number of months it would take to exhaust current inventories at the present level of sales activity, edged up to 3.6. Also, the median days on market (DOM) advanced eight per cent, to 18 days.
“With rising interest rates, July saw home sales activity continue to slow down,” Pawlowski added. “Inventory has increased, showing more signs of a balanced market. The 3.6 months of inventory in July is in line with the months of inventory recorded during the same month in 2014 and 2015.”
New housing construction has eased compared to a year ago. According to Canada Mortgage and Housing Corporation (CMHC), housing starts declined at an annualized pace of 73 per cent in July, coming in at just 236 units. In the first six months of 2022, starts plunged close to 50 per cent from the same period last year, totalling 1,682 units.
As the Bank of Canada (BoC) continues to lift its benchmark rate, homebuyers and sellers will monitor the situation with their real estate agents to determine the best possible entry and exit point.
A Housing Correction Is Unfolding
A recent Royal Bank of Canada (RBC) report highlighted that a housing correction is unfolding in the Canadian real estate market, particularly in British Columbia and Ontario.
The financial institution’s economists forecast that prices will slump by about 12 per cent from the February peak to early 2023. If accurate, it would represent “the steepest correction of the past five national downturns.” At the same time, the corrections may vary by housing markets.
“The size of the correction is likely to be larger for other price measures,” RBC wrote. “The average price of homes sold in Canada, for example, could tumble by 17 per cent or more (on a quarterly basis) in part due to a shift in the composition of sales toward lower-priced markets and housing categories—as buyers seek more affordable options. The average price is already down 8.6 per cent between the first and second quarters of this year, with notable declines in Ontario (-7.6 per cent) and British Columbia (-4.9 per cent).”
That said, do not mistake the correction for a collapse as “solid demographic fundamentals (including soaring immigration) and a low likelihood of overbuilding should keep the market from entering a death spiral,” the bank’s analysts stated in its research.
