As the Bank of Canada continues to raise rates to curb inflation, house prices in Canada could fall 15% from their highs by the end of next year, according to a new report.
The average price of a home in Canada reached just over $ 790,000 in February 2022, a 50% increase in two years. But the report, released by Desjardins on Wednesday, says that in December 2023, the average national housing price could fall to around $ 675,000.
Since the Bank of Canada began raising interest rates to combat inflation, house prices have been steadily falling. Desjardins says the average house price in Canada fell 2.6% month-on-month in March and 3.8% in April.
But despite the expected drop, Desjardins notes that $ 675,000 is still almost 30% above what it was in December 2019, when the average house price was $ 530,000 in Canada. Jimmy Jean, chief economist and strategist at Desjardins, says he expects falling house prices to be “quite manageable” before stabilizing, citing rising levels of immigration and a continuing shortage of housing supply in the middle. of strong demand.
“Our expectation is that the real estate market will cool to moderate, but we do not expect any collapse in any way,” Jean told CTV News on Thursday.
For most homeowners who intend to continue living in their homes for decades to come, including those who jumped on the market near the summit, Jean says this home fix will only be a small “lip.”
“Housing is a long-term investment that you normally make,” Jean said. “Ultimately, you’re buying a product to start a family, to live in it. So, in the long run, things will stabilize and get back on track. So it’s not a major concern from that perspective. “.
But it’s a different story for real estate investors who expected big gains from rising house prices.
“If you rent a property, sometimes if you don’t charge enough in terms of rent to offset the costs of the mortgage or the costs of utilities, those decisions were still justified by the idea that prices would continue to rise,” he said. . “Now it’s another story.”
The Bank of Canada is expected to raise interest rates by another 50 basis points in July, and Bank Governor Tiff Macklem has indicated that interest rates may need to rise to 3.0 per cent.
But Desjardins economists believe Macklem should not reach 3.0% and say 2.25% will be enough to curb inflation.
“The Canadian economy is very sensitive to rates,” Jean said. “We believe that this moderation will be significant and will slow down economic growth and therefore inflation, and this will eliminate the need for Tiff Macklem and the Bank of Canada to go up to three per cent.”
THE CORRECTION OF THE HOUSE WILL BE MORE SERIOUS IN THE MARITIME
While Desjardins predicts a 15 percent drop nationwide, some regions may experience even greater corrections, especially in parts of Canada that saw the sharpest increases in pandemic-era home prices.
After years of declining population, the maritime provinces saw an explosion in population growth from 2020 onwards, as the arrival of remote work allowed more Canadians from large cities to gather in the east coast, looking for larger and more affordable living spaces.
In turn, PEI, Nova Scotia and New Brunswick saw the country’s highest house price increases. Compared to December 2019 levels, the average price of a home in these provinces increased by 62 to 70 percent in February 2022.
These provinces are also expected to see the biggest corrections; Dejardins says house prices could fall by 18 to 20 percent.
The Prades and Newfoundland and Labrador saw the smallest pandemic peaks in house prices. These provinces are heavily dependent on oil and crude oil prices plummeted in the first months of the pandemic. The Desjardins report says housing prices in these regions are only expected to fall by 2 to 10 percent in December 2023.
BC home prices are also expected to fall 15 percent, closely reflecting the national average, while Quebec prices are expected to fall 12 percent thanks to their “much greater housing accessibility and a less overrated market, “the report said.
Ontario home prices are expected to fall by 18 per cent, but these falls will differ widely between regions. Like the Maritimes, Toronto’s short-drive communities saw house prices rise 70 percent between December 2019 and February 2022 as many Canadians started working from home. Desjardins says outside the Greater Toronto Area, house prices could fall 20 percent, and the biggest falls are expected in Bancroft, Chatham Kent and Windsor-Essex.
With files from CTV National News Parliament Hill correspondent Kevin Gallagher.