The slowdown in home sales and falling prices in Canadian cities make homeowners and potential buyers wondering how low valuations could reach as interest rates rise and the post-pandemic market begins to materialize.
But how far lower prices will go depends on what part of the country you live in, with a recent report by Desjardins Economic Studies suggesting that the cities that experienced the most pandemic growth now have the longest to fall.
Major Canadian real estate markets, such as Toronto and Vancouver, experienced less sales activity and even falling prices in April and May, as the Bank of Canada began to raise interest rates in recent years. three months.
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This “coldest wind,” as RBC economist Robert Hogue called it in a report last week, is expected to continue to bring home values down from the highs of the pandemic as demand softens and housing inventories have time to rebuild.
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Randall Bartlett, senior director of Canadian economy at Desjardins, tells Global News that rising interest rates are the “pin that is blowing up the real estate bubble that developed during the pandemic.”
The Desjardins report released last week predicts that from the peak of national house prices in February this year until the end of 2023, the average selling price in Canada will fall by 15 per cent.
Virtually every market is expected to see some falls, but some might see value erode more quickly.
In the Maritime, for example, prices in Nova Scotia and New Brunswick are expected to fall by 20 per cent during this time period. Ontario and Prince Edward Island could see falls of 18 per cent, with British Columbia returning up to 15 per cent.
Desjardins predicts that each province will see a decline in house prices between the recent peak and the end of 2023. Global news
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Desjardins predicts that markets that experienced the highest price growth over the past two years, when interest rates were low and urban ones fleeing big cities, will now see the biggest drop in home value.
“Some markets will go down faster towards this balance than others. And the corrections will be bigger in some places,” says Bartlett.
Prices at Maritimes, the communities around the GTA will fall
Royal LePage COO Karen Yolevski tells Global News that while national trends may be helpful, Canada’s real estate market is really made up of individual “micromarkets” and each goes its own way.
“We’ve described it as a bit of a mosaic. Some areas are still seeing multiple deals on homes. Some are seeing some of that price moderation,” he explains.
Desjardins hopes that the provinces that saw prices grow more moderately during the pandemic — Alberta, Saskatchewan, Newfoundland and Labrador among them — will see fewer falls by the end of next year.
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Major cities, such as Montreal, Toronto and Vancouver, will also see fewer declines due in part to continued demand linked to their status as immigration centers.
But in markets like Nova Scotia and New Brunswick, which saw prices rise nearly 70 per cent from the end of 2019 to the peak in February, there is much more value to return, says Bartlett.
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The onset of the pandemic saw many workers leave the big city and move further away, either looking for a more affordable housing market with more space or closer to friends and family.
1:57 No signs of cooling in NB housing market as population continues to continue No signs of cooling in NB housing market as population continues to flow
Now that many jobs across Canada are starting to call employees to the office, permanently or hybrid, a reverse phenomenon could be settling.
“Our expectation is that it’s not just the higher interest rates that are pulling these markets down, but also the fact that people are going to work again in some way,” Bartlett says.
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Ontario itself became a microcosm of this national trend, says Bartlett, as residents working in the Greater Toronto Area moved to work remotely in more affordable communities for the same salary.
As a result, Desjardins predicts that the cities within a couple of hours’ drive of Toronto (Bancroft, Windsor-Essex and Tilsonburg among them) are the ones most likely to retreat in the next 18 months.
Desjardins expects cities around Toronto to see the sharpest fall in the price of Ontario homes between February 2022 and December 2023. Desjardins Economic Studies
But as the pandemic is expected to subside, not all workers will necessarily return to the status quo.
Yolevski tells Global News that shoppers are in “a bit of a stalemate” right now as they wait to see not only how far interest rates will go, but also what kind of lifestyle is feasible for them afterwards. of the pandemic.
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“There are some buyers on the sidelines right now waiting to plan their next move. Some of them are also wondering where they can live in the long run,” he says.
Bartlett agrees and hopes the permanence of remote or hybrid work arrangements will help isolate price falls in smaller communities.
2:00 House prices in Kingston, Ont. begin to cool Home prices in Kingston, Ont. start to cool down
While Desjardins expects each province to see at least modest price drops, Bartlett says the forecast calls for a correction, not a collapse.
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No housing market is likely to see prices fall below pre-pandemic levels, he says, and described the upcoming fall as a “return to balance” welcome for younger Canadians and households. of lower incomes that have been kept out of home ownership for years. .
“There are some positive aspects that come out of that,” he says.
Read more: Canadian cities are not affordable for young residents, according to the report
The big question is how far interest rates will go, says Bartlett. He admits Desjardins is more “column” than most in his forecast, and expects the Bank of Canada to raise rates to 2.0% to 2.25% before being “constrained” by market correction real estate.
But the central bank warned in the past that rates should rise to three percent to curb rampant inflation.
Bank of Canada Governor Tiff Macklem said last week that he believes the economy can continue to support rising rates and said the real estate market is just one of the factors the bank is considering. time to assess the impact of high rates.
1:45 The economy can cope with new interest rate hikes, says Bank of Canada governor The economy can cope with new interest rate hikes, says Bank of Canada governor
“Where we could see a bigger correction is if the Bank of Canada decides it needs to do more to curb inflation,” Bartlett says.
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Even if the correction is more pronounced than Desjardins’ forecasts, Yolevski says homeowners who are stressed by the erosion of equity may find some consolation that house prices tend to have a higher trend with the time.
For most shoppers who buy a home as a place to live first and a store of value second, it predicts that short-term price drops are unlikely to sink their investment.
“If you buy shelter, you’re buying in the long run, these descents are unlikely to have as much of an impact,” Yolevski says. “We’re likely to continue to see a strong market over time.”
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