CIBC says ongoing market correction will “not solve housing affordability crisis”

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      Some are said to be secretly wishing the Canadian housing market to crash and burn.

      That’s supposedly how they think affordability can be achieved.

      Now, there’s an ongoing correction in the real-estate market because of increasing interest rates.

      Sales have dropped and so too have prices.

      The Bank of Canada is expected to raise interest rates some more, and the housing market is surely going to feel additional pain.

      Going by a new analysis, one thing that’s not happening is a collapse.

      As CIBC economist Benjamin Tal writes in a post Friday (July 22): “While at times it can feel that way, the housing market is not in a free fall.”

      The bank economist also believes that changes currently happening will not produce what many may consider to be affordable housing.

      “The point is that the ongoing correction will not solve the housing affordability crisis,” Tal stated.

      The bank economist estimated that “close to three-quarters of the 14% decline in the average national home price since the February peak was due to the composition factor”.

      This refers to “sales activity shifting from more expensive units (low-rise) to less expensive units (high-rise)”.

      The “reset process is not over” in the Canadian housing market.

      Sales activity will continue to fall, as well as average prices.

      “That price will have to fall by additional 25% to reach pre-Covid levels,” Tal wrote.

      “And back then,” the CIBC economist continued, “nobody suggested that Toronto or Vancouver were affordable.”

      What’s happening in B.C. could provide some context.

      The B.C. Real Estate Association has reported that a total of 7,136 homes were sold in June 2022, a decrease of 35.7 per cent from June 2021.

      However, the average price in the province rose to $951,105, a 4.6 percent increase from $909,657 recorded in June 2021.

      Meanwhile, the Greater Vancouver real-estate board reported that sales in the region totalled 2,444 in June 2022.

      The number represents a 35 percent decrease from the 3,762 sales in June 2021, and a 16.2 percent reduction from the 2,918 homes sold in May 2022.

      Meanwhile, the composite benchmark price in the region covered by Greater Vancouver real-estate board stood at $1,235,900 in June 2022.

      This benchmark price marks a 12.4 percent increase over June 2021, a two percent decrease compared to May 2022, and a 2.2 percent decline over the past three months.

      In his post, Tal also noted that housing could even become more expensive.

      “The significant and rapid increase in interest rates, along with surging construction costs and a lack of available labour make projects that only yesterday looked promising, totally uneconomical,” Tal wrote.

      Instead of greater affordability, the opposite could be happening.

      “In fact, we might be in the process of making the situation worse,” Tal wrote.