Concern Over Further Interest Rate Hikes Linked to Slowdown in Condo Market: Report

Condo and office towers are seen in downtown Vancouver, on April 25, 2023. (The Canadian Press/Darryl Dyck)

The prospect of further interest rate hikes is casting doubts among Canadian homebuyers, according to a recent Re/Max report. This development signals the conclusion of a short-lived resurgence in condominium activity across major markets nationwide.

The report follows a Bank of Canada warning on Sept. 6. that it is “prepared to further increase the policy rate if necessary,” expressing concern over persistent inflation. The central bank has maintained its main policy interest rate at 5 percent since then.

“Affordability remains a top concern in most markets across the country. Despite some softening in overall values, carrying costs are proving prohibitive for many buyers at today’s interest rates,” Re/Max said in the report.

The real estate company analyzed nearly 100 communities in seven major Canadian condo markets. It found that despite strong sales from May through August, it still falls short of the levels achieved in 2022.

In the first eight months of 2023, condominium sales have declined across the board, with only two markets bucking the trend. Calgary stands out with a 22 percent increase in sales and Edmonton saw a modest three percent year-over-year rise, the report said.

The average price has remained relatively steady in Greater Vancouver, Calgary, and Halifax-Dartmouth. However, prices have slipped in the Fraser Valley, Edmonton, the Greater Toronto Area, and Ottawa. Contributing factors include higher borrowing costs and the addition of a two-percent minimum qualifying rate, resulting in a reduction in condo market share in three of the seven markets—Greater Vancouver, Fraser Valley, and Ottawa.

Regional Performances

Toronto, Canada’s largest condominium market, has seen a significant increase in new listings in August, said Re/Max. The city saw a nearly 24 percent year-over-year increase in apartment inventory and a 7.5 percent increase in townhouse stock.

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The Fraser Valley also witnessed a surge in new apartment listings, which soared by 27.9 percent in August compared to the same month in 2022. Modest increases were observed in Edmonton and Halifax. Calgary, on the other hand, saw a substantial uptick in listing inventory, nearly 37 percent higher than 2022, but maintained a sales-to-new-listings ratio of 98 percent in August.

Greater Vancouver reported a year-over-year decrease in inventory, and Ottawa’s condominium market supply slightly dipped from 2022 levels.

Interprovincial migration has played a significant role in Alberta markets, attracting buyers from provinces such as Ontario and British Columbia in the first quarter of 2023.

While Ontario welcomed 125,000 international migrants during the same period, it saw a decrease of 14,732 in interprovincial migration—the largest decline on record since 2000. British Columbia received 40,840 international migrants but lost 712 residents.

Alberta and Nova Scotia welcomed 35,932 and 7,636 new international migrants, respectively, along with significant interprovincial migration.

Rahul Vaidyanath contributed to this report