Canada’s real estate market faces correction with a possible 15-20% prices decline

The latest report by Desjardins’ economics team says the Canadian real estate market will most likely bend, but not break, affected by growing interest rates and slowing sales activity.

According to Desjardins Senior Director of Canadian Economics Randall Bartlett and Senior Economist Hélène Bégin, home prices may quite possibly go down by 15% from their February 2022 peak by the end of 2023. However, they will still exceed the pre-pandemic levels.

“In our opinion, growing borrowing costs will keep restraining housing market activity as households vulnerable to rate hikes are getting ready for the upcoming storm. This will cause a sustained weakness in sales activity, thus keeping the downward pressure on prices,” – they noted.

“Although some Canadians may lose their sleeves, we don’t expect Canadian households to lose their shirts.”

Benjamin Tal, deputy chief economist at CIBC World Markets, says the prices decrease is most evident in case of low-rise units. However, in his opinion, we need to view it in the context of skyrocketing price growth seen over the recent years.

“I think home prices will show a more significant decline in the sector of low-rise properties, than in case of condos. Of course, it depends on where you live, but you can see that low-rise segment is already showing drops by about 15-20%, and this trend may go on,” – he said.

“Don’t forget that we’re talking about incredibly elevated levels where prices rose by 50% in just two years, so a decrease by 15-20% is not that crazy when we see interest rates growing so fast.”

According to the Canadian Real Estate Association, housing prices were down over the previous two months, following a non-seasonally adjusted record level of $816,720 reported in February.

The decrease appeared after the central bank started raising its key lending rate sharply with two 0.50% hikes at two previous meetings. The last time it acted so aggressively was 22 years ago.

Desjardins team doesn’t expect the same drops across the country, as stronger hit is most likely felt in markets where prices showed sharp hikes due to a wave of Canadians able to work remotely during the pandemic.

“It seems the national real estate market correction we expected has started, although it’s still focused in a few markets. Nevertheless, there’s no reason to panic,” – they assure.

“Although a prices decline by 10-20% is likely by the end of 2023 in most provinces, average home prices are expected to still exceed the pre-COVID level. It means, the predicted prices decline should bring more balance to Canada’s real estate market.”

 

 

 

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