After two years of rising house prices and unrealistic real estate bidding wars, the Canadian housing market may just see a massive cooldown phase.
According to a new report by RBC, Canadians can expect a "historic correction" with both resale activity and home prices "reaching lower levels than [...] anticipated."
The report by Robert Hogue, Assistant Chief Economist with RBC, projects home resales to fall 17% in Canada by early next year. This is after a drop of 19% in the second quarter and 13% between the first quarter of 2021 and 2022.
"Cumulatively, this 42% plummet (from record-high level)s since 2021 would exceed the peak-to-trough declines of all four previous national downturns," which goes all the way back to 1981, the report states.
Moreover, the national benchmark price is expected to drop "more than 12% from peak to trough by the second quarter of 2023."
There are several reasons behind this cool-down period, including rising interest rates. The Bank of Canada recently increased the interest rate by 1% bringing it to an all-time high of 2.5%.
And according to the RBC report, it's set to increase even further. "We still expect the overnight rate will reach 3.25% by October," states the report, adding that this will shut "the last window of super cheap borrowing costs available to buyers."
Not all markets will be hit the same, with the report expecting Ontario and British Columbia to be affected the most. It predicts home resales in B.C. to plummet by 45% and that in Ontario it'll drop by 38% in 2022 and 2023. This could result in a drop in home prices exceeding 14% from quarterly peak to trough in both provinces.
Provinces with more affordable housing markets will be less affected. "We project prices to slip less than 3% in Alberta and Saskatchewan, and between 5% and 8% in the majority of other provinces by the first half of 2023," the report states.
This might just present an opportunity for those who have been waiting for a chance to buy their dream home.
As the report points out, "the unfolding downturn should be seen as a welcome cooldown following a two-year-long frenzy that put a huge financial burden on many new homeowners and made ownership dreams harder to achieve."
At the moment, RBC hasn't ruled out a more severe slump.
But it's banking on factors like soaring immigration levels and a low likelihood of overbuilding to keep the market from hitting a death spiral, and expects the correction in the first half of 2023, lasting approximately a year.
This article's cover image was used for illustrative purposes only.
House Prices In Canada Could Drop More Than 12% By Next Year As RBC Predicts Historic Correction
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