OSFI expects home prices to go down by 20% in Canada

In January, housing affordability in the GTA kept worsening, as a significant lack of supply increased the competition between homebuyers.

According to the Toronto Regional Real Estate Board (TRREB), home sales were down by 18.2% annually last month, with 5,636 sales reported. While home sales fell in case of all housing types, it was still the second-strongest sales January on record.

Moreover, active listings went down by 44% and reached their lowest level in more than 20 years.

TRREB says the average home price went up by 7% from December and by 28.6% from a year earlier to a record $1,242,793. Real estate prices in the GTA have shown the all-time highs in case of four of the previous five months.

Nevertheless, Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI) believes real estate prices in Canada will go down as growing interest rates will finish a “speculative fever”.

A long period of sharply rising prices combined with available mortgages and a desire among Canadians to purchase and flip properties have all contributed to the buying frenzy, he says.

In his opinion, higher rates will weaken that fever and cause a slowdown in prices. “In some markets, where you’ve seen sharp price gains, you may see a decline of 10% or even 20%,” – Routledge said.

Canada has been one of the world’s hottest real estate markets, with 12 years in a row showing record numbers of the housing market. As worries over a possible housing bubble have intensified, the government has introduced a stress test, making sure new borrowers have enough income to cope with larger interest payments.

Real estate prices in Toronto were up by 18% to almost $1.1 million (US$867,500) in 2021, as homebuyers competed for a restrained number of available properties.

At the same time, Routledge says that significant drops in certain markets will hardly pose a strong threat to the national financial system, pointing to the way in which Vancouver and Toronto have coped with the similar decreases in the past.

“You’re talking strong declines of 20% in those cities during the period from 2015 to 2017”, – he said. “I believe we can absorb that volatility.”