Canadian home prices expected to drop 12%
`It's a necessary correction to restore affordability'
The drop in home prices in Canada this year will be steeper than forecast three months ago but mild compared with a historic run-up during the COVID pandemic, leaving many first-time buyers still priced out of the market, a Reuters poll showed.
Following nearly a year of mostly aggressive interest rate rises from near-zero that the Bank of Canada has only recently set on pause at 4.50 per cent, mortgage rates have soared over 170 basis points, restricting activity in the once red-hot market.
Average home prices in Canada have already fallen roughly 15.0 per cent from their early 2022 peak and are forecast to drop 12.0 per cent this year, according to the median view from a Feb 15-28 poll of 13 housing experts.
That is slightly more severe than the 10.0 per cent fall predicted in a November survey.
But that expected decline is dwarfed by the more than 50 per cent rise during the height of the pandemic, and is a very small fraction of prices that roughly tripled over the past two decades, suggesting the dream of owning a home will remain out of reach for many prospective first time buyers.
While most analysts said such a fall in house prices would improve affordability somewhat, others said they needed to drop a lot more to make any difference.
“We think in normal times a 30 per cent house price decline would be a crash, but in this context of what we're coming from with the two-year surge, it's a necessary correction to restore affordability,” said Tony Stillo, a Canadian director at Oxford Economics.
Asked how much average house prices would fall from peak to trough, the median response was 20.0 per cent, more than the 17.5 per cent predicted in the November poll. The range of forecasts varied from 12.5 per cent to 30.0 per cent.
House prices in Toronto and Vancouver, front runners in the recent house price boom, were forecast to drop 15 per cent and 12 per cent, respectively, in 2023, compared with rises of over 50 per cent and 30 per cent during the pandemic.
Without a large correction, prospective homeowners will continue renting. A strong majority, 7 of 10 analysts, said home ownership would decrease over the next two to three years.
“Of course, the Canadian housing market is rarely `affordable' for many potential first-time buyers,” said BMO Capital Markets chief economist Douglas Porter.