Monday Market Minute | Mar 21, 2022

Canadian housing market hits the inflection point — sales volume drops as rate hikes begin to bite

What Moved

CREA's February data showed the first signs of cooling in the Canadian housing market, with sales volumes declining in Toronto and Vancouver — the two most overheated markets. The average national home price had peaked near $816,000, but weekly mortgage application data pointed to a sharp pullback. The BoC's first hike was just weeks old, yet the mere signal of a sustained tightening cycle was enough to shift buyer psychology from FOMO to caution.

Why It Matters

The housing inflection marked a critical juncture for private markets participants with real estate exposure. Mortgage investment corporations faced a double shift: higher rates improved yield on new originations, but rising rates also reduced refinancing activity and increased borrower stress on existing books. Private real estate funds needed to reassess underwriting assumptions built on 2021's frothy pricing, particularly for pre-construction and land development plays.

Signal to Watch

Toronto Regional Real Estate Board's monthly data — the GTA market typically led national trends, and a sustained sales decline would confirm the correction thesis.

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