Home News Canada house prices set for sharp fall in 2023; BoC to hike 75 bps on Sept 7

Canada house prices set for sharp fall in 2023; BoC to hike 75 bps on Sept 7

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Single-family homes are seen against the skyline of Vancouver, British Columbia, Canada on September 30, 2020. REUTERS/Jennifer Gauthier/File Photo

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BENGALURU (Reuters) – Canada’s soaring house prices are set to fall sharply next year, but the Bank of Canada will continue to raise interest rates and keep them high for longer, keeping house prices affordable. That’s still not enough to make it affordable, according to a Reuters poll.

Fueled by near-zero interest rates, prices, already inflated in one of the world’s hottest housing markets, have surged more than 50% since the pandemic began.

An Aug. 12-30 poll of 14 real estate analysts found that average Canadian home prices rose 10.3% this year, slower than the current pace of about 11%.

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Prices have fallen nearly 6% since the BoC started raising overnight rates in March, but analysts say it will be years before affordability returns.

Average home prices are expected to fall 7.8% next year, well above the 2.2% decline predicted three months ago. If realized, it would be the biggest drop since at least 2005, when the Canadian Real Estate Association began collecting data on house prices.

Five respondents predicted a double-digit decline of as much as 18.2% next year. Home prices in Toronto and Vancouver are projected to fall 8.5% and 7.3% in 2023 after jumping 13.0% and 10.6% this year.

“The pandemic may not be over, but the pandemic-era housing market boom is certainly over,” said Robert Hoag, assistant chief economist at RBC. The bottom is still months away.”

More than three-quarters of economists, or 20 out of 25, attended another conference from 26 August to 26 September. A poll said the BoC said he would raise the rate by another 75 basis points next week to 3.25% after he raised it by 1 point in July.

“The BoC’s massive 100 basis point rate hike on July 13th threw ice-cold water on the market and disqualified some buyers from getting mortgages,” Hogue said. said.

“Expecting another 100 basis points of interest rate hikes in the next two rate announcements will no doubt keep things cool.”

What hasn’t cooled off much yet is consumer price inflation.

Central Bank Governor Tiff Macklem said the rate “will remain too high for some time” despite a slight easing to 7.6% in July from a 40-year high of 8.1% in June. , implying that the central bank has already hiked rates by 225 basis points. The point of this year is that there is still work to be done. read more

The BoC was expected to rise another 25 basis points to 3.50% in October. Responding to additional questions, he said all 17 economists were leaning toward a higher-than-expected peak at the moment, with his overnight rate at risk.

After the BoC peaks, 17 out of 21 say they are more likely to hold rates for an extended period of time rather than cut them relatively quickly.

This is likely to keep economic activity under pressure, with prices out of reach for many, especially in the interest rate-sensitive real estate sector. read more

When asked to rate the average Canadian house price on a scale of 1 to 10, 1 is very cheap, 5 is about right price, 10 is very expensive, median of the 13 contributors’ predictions I rated the value as 8.

The median response to another question was 7, indicating that the price would need to drop nearly 18% to be fair. Some said they needed to drop more.

“The reality is that home prices have been decoupled from income and rent for quite some time,” said John Passaris, president of Realosophy Realty.

“Even if benchmark home prices drop another 30% nationwide, prices will only return to the then-unaffordable February 2020 levels (pre-COVID), but buyers will still have higher interest rates compared to 2020.” will also face

(For more stories from Reuters’ quarterly housing market poll:)

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Reported by Indradip Ghosh. Poll by Swathi Nair.Edited by Ross Finley and Jonathan Ortiz

Our criteria: Thomson Reuters Trust Principles.

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