As the Bank of Canada continues to raise interest rates to curb inflation, Canadian house prices could fall 15% from their peak by the end of next year, a new report said.
The average house price in Canada peaked at just over $ 790,000 in February 2022, a 50% increase in two years. But a report released by Desjardins on Wednesday said that by December 2023, the average national house price could fall to about $ 675,000.
Since the Bank of Canada began raising interest rates to fight inflation, house prices have been falling steadily. Desjardins says the average house price in Canada fell 2.6% each month in March and 3.8% in April.
But despite the expected decline, Desjardins notes that $ 675,000 is still almost 30 percent above what it was in December 2019, when the average home price was $ 530,000 in Canada. Jimmy Jean, Desjardins’ chief economist and strategist, says he expects the fall in house prices to be “quite manageable” before stabilizing, citing rising immigration levels and persistent housing shortages amid strong demand.
“Our expectations are that the housing market will cool to moderate, but we do not expect a collapse in any way,” Jean told CTV News on Thursday.
For most homeowners who intend to continue living in their homes for decades to come, including those who jumped to the market near the top, Jean says the housing adjustment will be only a small “loss.”
“Housing is an investment you usually make in the long run,” said Jean. “After all, you buy a product to raise a family to live. So in the long run, things will stabilize and recover again. So from that point of view, that’s not a major concern. “
But this is a different story for real estate investors, who expected huge profits from rising house prices.
“If you rent a property, sometimes if you don’t collect enough rent to offset mortgage or utility costs, those decisions were still justified by the idea that prices would continue to rise,” he said. . “It’s a different story now.”
The Bank of Canada is expected to raise interest rates again by another 50 basis points in July, and the bank’s governor, Typh McCallm, said interest rates may need to jump to 3.0 percent.
But Desjardins economists say Macklem won’t have to go as high as 3.0 percent and say 2.25 percent will be enough to slow inflation.
“The Canadian economy is very sensitive to interest rates,” said Jean. “We believe that this slowdown will be significant and will lead to a slowdown in economic growth and therefore inflation, and this will eliminate the need for Typh McCallm and the Bank of Canada to increase to three percent.
HOME ADJUSTMENT TO BE THE MOST HEAVY IN THE SEA
While the 15 percent decline is what Desjardins predicts at the national level, some regions may undergo even greater adjustments, especially in parts of Canada where the sharpest rise in house prices since the pandemic era has been seen.
After years of declining populations in the maritime provinces, there has been an explosion in population growth from 2020 onwards, as the advent of telecommuting has allowed more Canadians from major cities to flock to the east coast in search of larger and more affordable living spaces.
For their part, PEI, Nova Scotia and New Brunswick recorded the highest increase in house prices in the country. Compared to the levels of December 2019, the average price of housing in these provinces increased by 62 to 70 percent in February 2022.
These provinces are also expected to receive the largest adjustments; Dejardins says house prices could fall between 18 and 20 percent.
The Prairies, Newfoundland and Labrador have seen the smallest spikes in house prices since the pandemic era. These provinces rely heavily on oil, and crude prices have fallen in the first months of the pandemic. Housing prices in these regions are expected to fall by only between two and 10 percent by December 2023, the Desjardins report said.
BC house prices are also expected to fall by 15%, largely reflecting the national average, while Quebec prices are expected to fall by 12% due to “much better housing affordability and a less overvalued market”. the report says.
Ontario house prices are expected to fall 18 percent, but those declines will vary widely across regions. Like the Maritimes, communities within hours of driving from Toronto saw housing prices jump 70 percent between December 2019 and February 2022 as many Canadians began working from home. Desjardins said outside of the Toronto area, house prices could fall by 20 percent, with Bancroft, Chatham Kent and Windsor-Essex expected to fall the most.
With files from CTV National News Parliament correspondent Kevin Gallagher.
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