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When do house prices bottom out in Canada? RBC says spring – Country

One of Canada’s major banks is calling for the country to cool down real estate market hit a spring low before fully adjusting to rising interest rates.

RBC’s Assistant Chief Economist Robert Hogue said in a report Friday that homebuyers are “taking precautions” because Bank of Canada continue to raise interest rates. The central bank assigns a 75 basis points increase last week and signaling rate will have to increase even more in the coming months core inflation is still hot.

But higher borrowing costs have had a chilling effect through the housing market, with the Canadian Real Estate Association (CREA) reporting on Thursday that Home sales in August fell 1% compared to July and 24.7% lower than the same month last year.

CREA also cut its forecasts for both housing activity and price growth. They now expect home sales to drop 20% by the end of 2022 from last year’s peak.

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However, Hogue’s forecast is even more dire, with annual sales expectations to fall 23% by the end of the year and another 14% drop in 2023.

RBC is now calling for the Bank of Canada’s benchmark interest rate to hit 4% by the end of the year, up from its previous call of 3.5%.


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“Higher interest rates will make more mortgage ineligible buyers and shrink the size of mortgages that others might qualify for,” Hogue wrote.

He added that there are “fewer — and more limited budgets — of active buyers in the market who are discounting.”

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Hogue wrote Friday that he expects the housing market to adjust to the higher exchange rate environment early next year.

In the spring, he predicts Canadian house prices will bottom about 14% below their February 2022 peak.

That drop would be even sharper in Ontario and British Columbia, he added, calling for a 16% peak-to-trough drop in house prices in both provinces. Meanwhile, Alberta and Saskatchewan will only see a 4% drop in prices, Hogue predicts.

Hogue estimates are more conservative than other market forecasts.

TD Bank said at the end of August that it expected a Home prices fall from 20 to 25% “unprecedented” in the first quarter of 2023 from a high a year earlier.

The Desjardins credit union also expects a House prices fell by nearly 25% by the end of 2023.

– with files from the Canadian Press


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