Canadian home sales edged down one per cent month-over-month in August, according to the Canadian Real Estate Association (CREA) another sign the rising cost of borrowing is taking a toll on residential real estate.

The MLS Home Price Index (HPI) fell 1.6 per cent month-over-month, though remained 7.1 per cent higher than a year ago.

It was the sixth-straight month of declines in sales activity, though the smallest of those six.

There was a marked split in the distribution of slowdown, with home sales rising in the Greater Toronto Area (GTA), but falling in Greater Vancouver, Calgary, Edmonton, Winnipeg, and Halifax-Dartmouth.

In a release, CREA Chair Jill Oudil said the latest figures were a sign of stabilization for Canada’s residential real estate market.

“August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” she said.

“That said, some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing.”

While CREA says there’s some degree of stabilization, Desjardins says the smaller decline in August sales is more likely a “dead cat bounce.” In a note to clients, Randall Bartlett, senior director of Canadian Economics at Desjardins, said higher rates are likely to further pressure residential real estate and ultimately tip the domestic economy into recession.

“We believe this is more likely to be a dead cat bounce than a bounce back in the Canadian housing market,” he said.

“With rates continuing to ratchet up since August and more hikes likely in the hopper given recent data, this will continue to push residential investment to contract and weigh on the Canadian economy. We are of the view that this is likely to push the Canadian economy into recession in the first half of 2023.”

The cost of borrowing has been on the rise as the Bank of Canada increases its benchmark rate from the pandemic low of 0.25 per cent to the current 3.25 per cent. That’s also lifted mortgage qualifying rates to the highest level since the early aughts, with the stress test ensuring mortgage-holders can withstand a rate approaching seven per cent.