Home Business Canadian house prices expected to tumble 17.5% peak to trough, analysts say

Canadian house prices expected to tumble 17.5% peak to trough, analysts say

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Canadian house prices are expected to fall 17.5% from their 2008-09 financial crisis peak, which nearly doubled, according to a Reuters poll of market experts.

A series of rapid rate hikes by the Bank of Canada, which raised the overnight rate from near zero to 3.75% in just eight months, removed some steam from the market and doubled the average five-year mortgage rate. . Nearly 5 percent.

But in addition to what was already seen as one of the world’s most expensive real estate markets, the expected decline in home prices after rising more than 50% during the pandemic could bring prices back to affordable levels. is not enough.

With a debt to net disposable income ratio of 1.85, Canadian households are among the most indebted countries in the world, and their high exposure to variable rate mortgages makes them vulnerable to rising interest rates. increase.

A poll of 12 real estate analysts conducted Nov. 8-22 found that peak-to-trough revised forecasts ranged between 10% (how much the market has already fallen) and 30%. was.

Tony Stilo, director of Canadian economics at Oxford Economics, said rising mortgage rates and panicked price increases during the pandemic have pushed the average cost of housing “35% above average-income households’ ability to borrow.” said.

“With steady income growth, stable mortgage rates and a strong increase in housing supply, our forecast of a 30% decline in home prices will push home prices into the affordable range by the second half of 2025. I will be back,” he said.

According to median responses to additional questions, house prices need to fall 25% from peak to trough to make housing affordable. Responses ranged from 18% to 35%.

This is in line with BoC Senior Vice-Governor Carolyn Rogers saying this week that house prices need to fall to restore balance in the housing market.

According to the median forecast of polls, average house prices are expected to rise 11.8% this year compared to 2021, then fall 10.0% next year, and rise 1.3% in 2024, adding up to I am falling behind.

“We are in a unique situation where demand is cracking and buyers cannot or cannot afford to qualify for early pricing. Sellers can still say “no thank you”.

Housing starts fell 11% last month as sellers delayed listings in hopes of a spring rebound and soaring borrowing costs dragged down demand.

The central bank overnight rate was expected by the market to peak at 4.25-4.50% next year as consumer inflation is well above the BoC’s 2% target of 3x.

Home prices in Toronto and Vancouver, the epicenter of the biggest price boom in recent years, are projected to fall 11.0% and 9.3% in 2023 after rising 58% and 35% since the pandemic began.

Respondents were asked to rate the average Canadian house price on a scale of 1 to 10. 1 is very cheap, 5 is about right price and 10 is very expensive.

Most property market experts said the risk of a home price crash was low. During the financial crisis, US home prices plummeted by about 40%, while the Canadian market fell only 9% during that time.

“In a more ‘normal’ pre-pandemic period, a 30% drop in house prices would be considered a crash. But in the current situation, where home prices have surged by 50% in just two years during the pandemic, a 30% price adjustment would leave home prices still above pre-pandemic levels,” added Stillo. rice field.

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