RBC economist doesn’t believe Canada’s housing market will crash anytime soon

Housing market activity in Canada is showing signs of a slowdown following an insane pace of the previous two years. However, according to Robert Hogue, assistant chief economist at RBC, the possibility of a real estate market crash is tiny.

“In our opinion, home prices will moderate. The change will start in the middle of 2022, although it has already begun in certain markets,” – he noted. “Nevertheless, it will be a soft landing and not a sharp correction or crash, and there are still many factors supporting the market, e.g. demographics”.

“I will not exclude the possibility of significant price decreases in case of certain markets, but I expect a moderate correction as a national phenomenon.”

The recent report by Canadian Real Estate Association (CREA) shows that home resales went down by 12.6% during the period from March to April 2022, while home price index saw its first monthly drop in two years.

National home sales fell by 25.7% annually, and April sales in Toronto posted a year-over-year decline by 41%.

However, Hogue says such numbers were quite expected, as the red-hot market of recent times has been an anomaly caused by the unprecedented pandemic-era buying conditions.

“We need to remember where we’re coming from,” – he said. “We’ve been almost two years in a mad market with bidding wars spreading all over the country and creating frustration for many young Canadian buyers”.

“The market slowdown is not a shock, as the levels of activity up until this moment were just not sustainable in the long-term perspective. Are there risks associated with that? Obviously. When you reach a turning point in any cycle, it could cause certain overreaction from some market players.”

RBC is still sure the coming correction will be “reasonable”, even though it could be sharper in certain markets, e.g. Ontario and British Columbia which are likely to deal with “pretty strong headwinds.”

“We’ve already seen some activity slowdown in April, and even some softening in prices in many markets,” – he said of Ontario. “British Columbia shows slightly mixed picture, but later we’ll probably see more softness. The most expensive markets will definitely see more challenges in terms of growing interest rates.”

Those rate increases have been the main factor when it comes to Canada’s mortgage market, with the central bank putting an end to the period of historically low rates of the pandemic by raising its key lending rate at the beginning of this year.

The Bank of Canada’s next rate meeting is scheduled for the next Wednesday and many expect a third rate hike in a row as the BoC tries to restrain inflation.

At the end of April, the Bank’s governor, Tiff Macklem, said it was ready to act “forcefully” in order to slowdown the inflation.

Hogue and RBC predict 0.50% rate increases in each of the BoC’s next two rate announcements. The economist doesn’t think a cooling real estate market will make the Bank change its course for the rest of the year.

“In my opinion, the central bank is fully focused on inflation,” – he added. “As long as inflation is elevated and there is a risk of further growth, the BoC will keep raising its key lending rate”.

“The Bank will pay attention to the real estate market correction, but I don’t think any change in this segment will make the Bank adjust its plan”.


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