Projections vary wildly when it comes to expert forecasts on how house prices in Canada will perform this year and next.
The Canada Mortgage and Housing Corporation predicts average house prices nationally will only drop between 3 per cent to 5 per cent, this year and the middle of next.
But other experts, including those with the TD Bank say there will be a steep decline by early next year — as much as 19 per cent.
Meanwhile, Royal LePage’s April forecast called for the aggregate price for homes in Canada to jump 15 per cent in the fourth quarter of this year compared to the same time last year — but that has since been revised down to a 5 per cent increase.
And in mid-June, the Canadian Real Estate Association called for national average home prices to jump 11 per cent to $762,386 this year — though in a statement yesterday, a spokesperson said interest rates have increased since that forecast, and a September revision by the association will “likely be downward.”
A lot of variety for house buyers and sellers to mull over before making a big decision.
CMHC, Canada’s national housing agency, released a report this week by their chief economist Bob Dugan with modelling showing that a “moderate” interest rate scenario — a policy rate increase by the Bank of Canada to 2.5 per cent early next year, (up from the 1.5 per cent rate, before Wednesday’s expected announcement from the Bank) — would result in a 3 per decline in house prices by mid-2023.
Dugan also said in a high interest rate environment — a Bank of Canada interest rate hike to 3.5 per cent — the national average house price would remain “elevated” but would decline by 5 per cent by mid next year.
Dugan adds that the high rates of house price increases seen in the last two years across Canada have been “unsustainable.”
The cost of housing has “reached levels that are unaffordable for a large share of new home buyers, translating into a slowdown in 2022,” Dugan stated.
But that said, Dugan argues that a key factor — a severe shortage of housing supply — will keep the demand for houses and house prices high, thus the 3 per cent to 5 per cent decrease he is predicting.
“The supply shortage will limit how much we believe house prices will fall.
“We think demand will remain fairly strong … and limit how much house prices correct,” he later added.
“We’re not building houses fast enough to keep up with the demand,” Dugan said, noting that Canada has aggressive immigration targets, and while a lot of those individuals will turn to rental accommodation, many will opt to buy a house.
On the upside, Dugan said the market correction is leading to a cooling off of “investment behaviour.” Speculators are backing out of the housing market and thus making room for end users — people who are actually living in the houses they purchase, he says.
Royal LePage is predicting that the “aggregate’’ price of a home nationally will go up by 5 per cent to about $818,000 by the fourth quarter of this year compared to last.
But that’s a significant revision down from the 15 per cent increase predicted in mid-April.
“The forecast has been revised downward from the previous quarter following more aggressive than expected interest rate hikes by the Bank of Canada, resulting in an expected temporary drop in demand in parts of southern Ontario and British Columbia,” Royal LePage said in a statement Wednesday.
Karen Yolevski, chief operating offer for Royal LePage Real Estate Services, said there has been “tremendous growth” in house prices in the first quarter of this year and what we’re seeing now is a “moderation” from that.
“Prices just kept accelerating month after month. So, we’re just coming off of a peak, as opposed to — people like to throw around the word ‘crash’ and things like that. That’s not what we’re seeing.
“We’re seeing price deacceleration off of the peak of Q1, (this year) which was an unheard amount of growth,” Yolevski says.
She said house sales are down in the major markets like the GTA, because people are waiting to see how interest rates affect prices and affordability, but there a lot of buyers wanting to get in and many who already own and want to move up.
“Demand is not going to wane,’’ she said.
John Pasalis, president of Toronto real estate brokerage Realosophy Realty, says a 10 to 20 per cent drop nationally in house prices is “probably more realistic than CMHC’s prediction.
TD Bank is standing by its forecast of a 19 per cent “peak-to-trough” decline in house prices from the first quarter of this year to the same time in 2023, with modest growth after that.
But Rishi Sondhi, an economist with the bank, notes that house prices went up a little bit less than 50 per cent during the COVID-19 pandemic.
“We’re only retracing a portion of that gain. We’re framing the (forecast 19 per cent decrease in prices) as a recalibration of the market,” Sondhi says.
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