Mike Chaar, Associate Editor, MTL Blog
Thursday July 28, 2022
Montreal homes, Right: Aerial view of residential homes in Canada. Christopher Bradshaw | Dreamstime, Edgar Bullon | Dreamstime
Canada's housing market could see a "historic correction" in the coming months, which could see house prices drop, according to a recent report from RBC.
The global housing market has faced a major crisis, with the cost of homes soaring during the pandemic. Now, RBC is predicting that national home prices could drop by more than 12% as of early next year.
"We
expect the downturn will deepen in the coming months with both resale
activity and home prices reaching lower levels than we previously
anticipated," RBC stated.
The
Royal Bank of Canada said that home resales could fall by 23% this year
and 15% in 2023 — with the "national benchmark price to drop more than
12% from peak to trough by the second quarter of 2023."
Per
RBC's report, home resales are expected to fall by another 17% in
Canada by early next year, which follows a previous drop of 13% between
January 2021 and January 2022.
"Cumulatively,
this 42% plummet (from record-high levels) since early 2021 would
exceed the peak-to-trough declines of all four previous national
downturns (-33% in 1981-1982, -33% in 1989-1990, -38% in 2008-2009 and
-20% in 2016-2018)," the report says.
So, what's causing this likely dip in home prices and home resales?
The Bank of Canada's rising interest rates also plays a role. After increasing the interest rate by 1% — bringing it to a 14-year high of 2.5%
— RBC predicts that the rate is only expected to go up. "We still
expect the overnight rate will reach 3.25% by October," the report
states.
This will ultimately close "the last window of super cheap borrowing costs available to buyers."
While
Canada's housing market as a whole will see a decline, the report
states that Ontario and British Columbia will be affected the most.
"Our
forecast has home resales in British Columbia and Ontario cumulatively
sagging 45% and 38%, respectively, in 2022 and 2023, setting the stage
for a home price index drop exceeding 14% from quarterly peak to trough
in both provinces."
This
welcome cooldown following a hectic housing crisis will certainly
diminish some of the financial burden put on many new homeowners.
RBC
says that the correction will most likely occur over sometime in the
first half of 2023 and last "approximately a year — with some markets
likely stabilizing faster than others."
This article's cover image was used for illustrative purposes only.