RBC predicts housing market activity peak in spring and prices drop in 2023

According to RBC Assistant Chief Economist Robert Hogue, Canada’s real estate market will see its activity peak in spring, following a record run.

In a recent report, Hogue says the residential housing market will probably reach its peak this spring, as the central bank’s rate-increasing cycle slows the activity and restrains prices growth.

“Now, we expect home resale activity to slow faster than initially anticipated. In addition to it, we believe home prices will peak this spring as market sentiment leaves the extreme hikes zone,” – he noted.

“With these new conditions, local markets may face a soft price correction (decline), partly offsetting significant increases seen over the previous year.”

Last month, we saw home sales activity also slowing, with an annual decline of 16.3% from its record numbers.

In Hogue’s opinion, the tendency will go on, although the sharp prices hike so far this year will probably lead to higher average annual prices on a year-over-year basis.

He expects the national average price to go down by about 5% on a quarterly basis.

According to Hogue’s estimates, Canadian home sales activity will go down by 13% in 2022 and by 14% next year. Nevertheless, it will not lead to lower average prices this year because of the strong start of 2022. RBC predicts an 8.1% increase in aggregate prices this year and a 2.2% decline in 2023.

Hogue expects price decreases to differ from one region to another, with stronger pressures in Vancouver and Toronto.

He believes there is no escape for potential homebuyers who have been switching to variable mortgage rates because of the latest gains in the sector of fixed ones.

“Fixed mortgage rates have risen significantly since the fall when financial markets started expecting a new strategy from the BoC. However, the influence on mortgage borrowing has remained muted so far as borrowers have switched to variable mortgage rates which were still historically low,” – he noted.

“But the central bank’s rising campaign will soon make variable rates more expensive too, leaving borrowers with no choice at all.”

According to Hogue, with growing interest rates, Canadians will see their purchasing power reduce, more than offsetting increases caused by the extremely low rates over the previous two years.

“Even those borrowers who still qualify for a mortgage will see how higher rates cut the size of the mortgage they can receive. For instance, in case of households with the median income, the increase in fixed rates will reduce the maximum purchase budget by about 15%,” – he said. “That will more than offset the gains seen in 2020 and early-2021 when falling interest rates caused a certain budget increase.”