TORONTO – A correction in the housing market, which has already led to four consecutive months of falling prices in the previously overheated sector of the Greater Toronto Area, could end up becoming “one of the deepest in the last half century.” This is the warning contained in a new RBC report. 

New data released by the Toronto Regional Real Estate Board (TRREB) last week revealed that the average benchmark price for a home in the GTA in July fell 6% month-on-month to $1,074,754. But it’s not just prices that are plummeting: sales have also fallen by 47% compared to July 2021.

In the report published on August 4, RBC senior economist Robert Hogue said recent data from real estate boards underscores that higher interest rates are starting to be a “huge drag” on the market.

And with further increases on the way, Hogue says, prices will likely continue to fall in the coming months as well.

This forecast, it should be noted, goes against a report by Royal LePage last month that presented a more rosy forecast for sellers assuming that the value of real estate, after some declines in the second quarter, would remain more or less at the same level for the rest of the year. “We expect further increases by the Bank of Canada – another 75 basis points for the overnight rate by the autumn – to continue to cool the market in the coming months,” Hogue said. The less affordable markets of Canada, Vancouver and Toronto, and their surrounding regions, in light of their excessively reduced accessibility and disproportionate price increases during the pandemic, are undoubtedly the ones most at risk.”

The Bank of Canada has raised its overnight lending rate by 225 basis points since March and warned that – given that inflation remains at 40-year highs – further increases will be needed.

In his report, Hogue pointed out that the housing market correction “now runs far and wide across Canada,” but said it is particularly pronounced in the more expensive markets of Toronto and Vancouver. Hogue said housing resale business in Toronto, excluding the early days of the Covid-19 pandemic, is at its slowest pace in 13 years. At the same time, the number of available homes has increased by 58% compared to a year ago. “With more options to choose from and higher interest rates that reduce purchase budgets, buyers are able to get significant price reductions from sellers,” he said, noting that the average price of a home in the GTA is down 13 percent from March.  because they have to cope with rising interest rates.”

Apartments in the city of Toronto are likely to hold on, according to Hogue, while prices elsewhere, for the time being, will continue to fall, especially in the 905 area “where property values have soared during the pandemic.”

TRREB’s July data suggested that the average price of a home in the GTA was still up 1% from July 2021.