RBC expects real estate prices in Canada to reach their bottom next spring

One of the largest Canadian banks expects the national real estate market to reach its bottom point next spring and then fully adjust to growing interest rates.

According to RBC assistant chief economist Robert Hogue, home buyers these days are “on the defensive” as the central bank keeps raising its key lending rate. As you know, on September 7, the Bank of Canada delivered a 0.75% rate increase and warned about more hikes coming in the nearest future, as the inflation is still too high.

However, the higher borrowing costs have already affected the housing market, with the Canadian Real Estate Association (CREA) saying that home sales in August fell by 1% from July and by 24.7% from a year earlier.

In addition to it, CREA also reduced its forecast for housing activity and price growth. Now, it believes home sales will go down by 20% by the end of this year compared to their last year’s peak.

Meanwhile, Hogue predicts a 23% annual drop in sales by the end of 2022 and a 14% decline next year.

Another change is that RBC now expects the BoC’s overnight rate to reach 4% by year’s end, and not 3.5% like it has predicted earlier.

“Higher interest rates will push more buyers out of the mortgage market and reduce the size of a mortgage others can qualify for,” – he noted.

According to Hogue, “fewer (and more budget-restrained) active buyers in the market are taking steam out of prices.”

In his opinion, next spring, the real estate market will adjust to the higher-rate environment early next year, with Canadian home prices reaching their bottom reporting a 14% decline compared to the peak numbers of February 2022.

Ontario and British Columbia will show a drop by 16%, he says, while Alberta and Saskatchewan will face a drop by only 4%.

Such forecasts seem to be more conservative than other market predictions.

TD Bank expects an “unprecedented” 20-25% home prices decline in the first quarter of 2023 from the February peak results.

Credit union Desjardins also predicts a drop by about 25% by the end of 2023.





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