Interest rates cut sales
The Canadian Press - May 16, 2022 - Business Buzz

Photo: The Canadian Press

Increasing mortgage rates slowed home sales in April from the frenzied pace they started the year at, the Canadian Real Estate Association said Monday.

The association found the number of homes sold dropped by 25.7% to 54,894 last month from 73,907 in April 2021, when the country set a record for the month.

On a month-over-month basis, sales in April were down 12.6% compared with March but still ranked as the third-highest April sales figure, just behind 2021 and 2016.

“The demand fever in Canadian housing has broken and, who would have thought, all it took was a nudge in interest rates by the Bank of Canada to change sentiment,” BMO Capital Markets senior analyst Robert Kavcic said in a note to investors.

CREA attributed much of the slowdown to fixed mortgage rates, which have been on the rise since 2021, but have been more impactful in recent months. The association pointed out that typical discounted five-year fixed rates have leaped from about 3% to 4% over the span of a month.

The rate is also weighing on how buyers fare with the mortgage stress test, which once required those with uninsured mortgages—borrowers with a down payment of at least 20 per cent—to carry a mortgage rate of either two percentage points above the contract rate, or 5.25%, whichever is greater.

For fixed borrowers, CREA said the stress test just moved from 5.25% to the low 6% range, another roughly 1% increase in a month.

“People are nervous. They are thinking, ‘If I take on this mortgage, when mortgage rates are going up and the price to (live) is more, what is going to happen?'” said Anita Springate-Renaud, a Toronto broker with Engel & Völkers.

She noticed that many homes were still getting multiple offers last month, but instead of 20 offers, two or three was becoming the norm.

Properties are also taking longer to sell. Homes that used to find a buyer in three or four days are now sitting for two weeks, in some cases, she said.

All Business Buzz Stories