More and more Canadians expect real estate prices to go up

Canadian housing hunters don’t seem to be scared by future interest rate hikes at all.

The recent poll by Nanos Research Group for Bloomberg News shows that optimism about Canada’s real estate market almost reached a record high level last week, even in spite of warnings from central bank that borrowing costs will go up and may affect the housing market.

The survey results say 64% of respondents expect home prices to grow in their neighborhoods over the next six months, which is 4% more than during the previous week. Such a number is one of the fastest weekly gains on record.

It’s quite a surprising result, as the Bank of Canada warned recently that it plans to start raising its key lending rate in March. Moreover, it proves that there’s a lot of work for the BoC to restrain the speculative expectations in Canada’s real estate market, which has shown prices increase by more than 40% since the beginning of the pandemic.

Canada is outpaced only by New Zealand in Bloomberg’s global rating of hot housing markets.

As you know, every week, Nanos Research surveys 250 Canadians concerning their views on personal finances, job security and their forecasts for the national economy and home prices. The results are based on a four-week average of about 1,000 responses.

The question on real estate prices exceeded 64% only once – when it reached a multiple weekly record level in April 2021. Meanwhile, the historical average number is approximately 40%. Only 5.6% of respondents expect prices to go down, which is also close to a record low level.

On January 26, the BoC held interest rates steady but warned that it would start raising borrowing costs in the nearest future in attempt to cool inflation. In addition to it, Canada’s bank regulator warned about a possible prices correction (decline) at some markets.

Peter Routledge, the head of the OSFI, said last week that some markets may face prices decline by as much as 20%.

At the same time, according to economists, the BoC’s decision to postpone rate increases to March could fuel the real estate market.

“There’s a possibility that the decision to wait five weeks before raising the overnight rate could provide further fuel to the already red-hot Canadian housing,” – Benjamin Reitzes from Bank of Montreal, noted. “There’s little doubt that based on real estate market alone, rates need to go up.”