Homeowners have lost billions in the wake of the real estate downturn
In Canada, the average price of a home has fallen by around $179,047 since the peak, reached in February.
The Canadian real estate market cooled following the rapid rise in interest rates. Sales fell 24% compared to the same period last year. This slowdown has contributed to the decline in the purchasing power of Canadian households, according to experts.
The prospect of a cooling market has often been touted as an opportunity to invest in real estate. But despite a 20% drop, the average price of a home in Canada is still where it was at the start of 2021.
I consider that to be like letting air out of a balloon, says Colin Cieszynski, chief market strategist at SIA Wealth Management. You don't necessarily want this to break out, but prices needed to come down to something a bit more sustainable.
Falling house prices have contributed to the biggest drop in household wealth the country has ever seen, according to Statistics Canada.
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Much of household wealth is built up in house prices and it just took a hit with these declines. The sector itself remains one of the largest contributors to Canadian GDP.
According to Statistics Canada, the net worth of Canadian households – defined as the value of all assets minus all Liabilities – fell $990.1 billion in April, May and June.
This fall was compounded by a $389.8 billion decline in the value of non-financial assets, as the run of gains in real estate that began in late 2018 was interrupted by a weak housing market. struggling with a rapid rise in interest rates, the federal agency wrote in a statement last week.
The decline in household wealth is also attributable to the fall of the stock markets in the second quarter, despite a slight recovery in recent months.
You should know that the Statistics Canada figures are for the period that ended in June. Housing-related losses accelerated in July and August.
Falling house prices are having a ripple effect on the rest of the economy. x27;economy, like spending on building materials, furniture, all that kind of stuff, said BMO chief economist Robert Kavcic.
We have more depressed real estate activity which will dampen real economic growth which in turn will dampen job growth, he added.
With rising rates, consumers could postpone the purchase of furniture for example.
As home values skyrocketed in recent decades, homeowners felt wealthier. They borrowed and spent more, using the ever-increasing value of their homes as a sort of ATM.
As values fall and interest rates rise , homeowners are less likely to borrow and spend.
High interest rates will also slow the economy in another way, Kavcic said. If your mortgage payment increases by $500 or $1000 per month, it immediately eats away at discretionary spending that you might otherwise be spending elsewhere in the economy.
The situation is d& #x27;all the more complicated as global inflation hurts purchasing power and diminishes the effect of wage increases. All of these are driving consumers to cut back on spending.
If you don't go out for dinner anymore, well, that's one less sale for the restaurant on the corner and maybe at some point a few fewer jobs, illustrated Mr. Kavcic, of BMO, who expects tough days ahead.
If inflation persists as higher interest rates hurt the economy, says- he, central banks, including the Bank of Canada, may have to raise rates further to calm things down. Rates could stay high for as long as it takes.
Ultimately, all of this is creating turbulence for stock markets and the real estate sector, dragging in its wake an even steeper decline in household wealth.
We will know more next week when releasing inflation data. The figures are expected to show inflation falling to 8.1% in June, a 39-year high, despite the rising cost of goods and services and falling prices at the pump. /p>
With information from Peter Armstrong of CBC News