After dropping by more than 40% since February, home sales show signs that they may be reaching a bottom.

In October, home sales rose for the first time since before the interest rate hikes, increasing by 1.3% from September.

But they are still down 36% compared to last October, according to the Canadian Real Estate Association (CREA).

Sean Cathcart, Chief Economist at CREA, said: "October provided another monthly data point suggesting that the slowdown in Canadian housing markets is about to end."

Adding, "Sales actually rose from September to October, and price declines slowed on a monthly basis for the fourth consecutive month."

CREA said that seasonally adjusted, home prices decreased by 1.2% from September, the smallest decline since June.

The actual price (not seasonally adjusted) was $644,643 in September, representing an increase of 0.7% from September, but a decline of 9.9% from last year.

On the other hand, CREA pointed out that new listings rose by 2.2% on a monthly basis, "with gains in the Greater Toronto Area (GTA) and British Columbia."

The Lower Mainland offset declines in Montreal and Halifax-Dartmouth."

Months of inventory continued to improve slightly, rising to 3.8 months, up from 3.7 in August and a record low of 1.6 earlier this year.

Adjusting for expensive markets in the Greater Toronto and Vancouver areas, the average price is $519,643.

Data also indicates that this current downturn may be entering the "final stages of the cyclical contraction," according to Robert Hogue from RBC Economics.

Hogue wrote: "The pace of the decline is now slowing—there was even a slight monthly increase in national home resales in October—representing a notable shift from the steep drop in activity that occurred during the spring and summer seasons." "While we continue to believe that the turning point is still a bit away, it suggests that most of the price correction is likely behind us—at least for Canada as a whole."

Rishi Sondhi, TD’s economist, agreed, writing, "In the absence of further rate hikes, one could argue that demand for Canadian housing is nearing the bottom," but with more interest rate hikes expected from the Bank of Canada, this will impact demand and prices.

He said, "In fact, they should continue to decline during the first part of next year." While Hogue sees the worst price declines as already behind us, he adds that rising interest rates and further deterioration in affordability will keep market activity “quiet” until early 2023, with prices hitting their lowest point sometime in the spring.

He pointed out that "The market downturn may be in a late stage, but that doesn’t mean things are about to heat up and push prices back up."

Adding, we expect high interest rates—which are still rising—meaning they will continue to challenge buyers for some time.

Explaining, this will keep activity quiet for longer even if it stabilizes near current levels."