Canada's Housing Market is still affected by High Interest Rates

With recent data showing a decline of about 11% in the housing market since February, it is important for federally regulated financial institutions to stay alert to changing market conditions.

The Canadian housing market has been a topic of concern for the Office of the Director of Financial Institutions (OSFI), with the possibility of a recession looming in the near future. In its recent risk outlook, OSFI has highlighted the rapid adjustment of interest rates as one of the biggest risks to the country's financial system.

According to OSFI director Peter Routledge, the agency is not predicting a housing market recession but simply preparing for the possibility. With recent data showing a decline of about 11% in the housing market since February, it is important for federally regulated financial institutions to stay alert to changing market conditions.

Canada's Housing Market is still affected by High Interest Rates

As interest rates continue to rise, it has become increasingly challenging for real estate developers to launch new construction projects. Prior to 2022, most projects had low-interest-based financing, making new constructions more affordable and therefore more financially viable. However, with the recent spike in interest rates, homebuyers are facing high prices, and this is leading to a plummet in home values.

The average number of construction units in the first quarter of 2023 was the lowest since the pandemic first occurred in early 2020, with many developers cautious to start new projects because of increased construction costs. Although the Canadian Real Estate Association noted some signs of stabilization in the market after the interest rate adjustments, the Housing and Mortgage Organization still thinks that the slowdown in construction is far from over.

As the challenge of securing financing continues to spread into 2023, the difficulty of starting new construction projects is expected to become even more widespread. This will hinder the pace of construction in many large urban areas, slowing down the housing market even further.

With OSFI urging federally regulated financial institutions to stay alert to changing market conditions, it is clear that the Canadian housing market is at a critical juncture. Only time will tell how things will unfold, but the future looks uncertain for real estate developers and homebuyers alike.