Canadian home sales dip in August as mortgage rates and uncertainty bite

Canadian home sales declined in August, with the Canadian Real Estate Association (CREA) reporting a 0.7% month-over-month drop as rising economic uncertainty and higher mortgage rates dampened activity.

On an annual basis, sales were down 6.9% without seasonal adjustment, according to the industry group's data released on Tuesday.

The Home Price Index was unchanged from the previous month but remained 3% lower year-over-year. Newly listed properties rebounded 3.3% month-over-month, following three consecutive monthly declines.

The sales-to-new listings ratio eased to 49.1% in August from 51.1% in July, moving further below the long-term average of 54.7%.

"What has changed is the broader economic environment, with the Bank of Canada recently warning of rising inflation risks, along with doubts about the durability of recent economic growth," Shaun Cathcart, CREA's senior economist, said in a statement.

"For borrowers, fixed mortgage rates have already increased on higher bond yields. Meanwhile, on the variable rate side, a rate hike is not only back on the table for this year but already priced in by markets," Cathcart added.

Bond yields have climbed globally in recent months as higher energy prices linked to the Middle East conflict boost inflation, prompting central banks, including the Bank of Canada, to consider interest rate hikes.

Money market data shows investors see a roughly 60% chance that the Bank of Canada will raise its benchmark rate, currently at 2.25%, as soon as October, and are pricing in one-and-a-quarter percentage points of tightening by the end of 2027.