The GTA housing market showed signs of life in August, with the average benchmark price rising for the first time in months, but a new RBC report warns the correction “is not over yet”.
In a note to clients on Thursday, RBC Deputy Chief Economist Robert Hogue warned that interest rate hikes expected in the coming months “will disqualify more buyers from getting a mortgage and reduce the amount of a mortgage that other people can claim”.
This, he said, will only exacerbate a housing correction that has been underway since March and is not expected to end until the spring.
“We believe the market will adjust to higher interest rates by early 2023. Any recovery will likely take a few months to tighten supply and demand conditions, setting the price floor towards spring (overall for Canada),” he said. “We expect benchmark prices to be down about 14% from the recent national high. Provincially, we expect Ontario and British Columbia to experience the largest peak-to-trough declines at -16% and place Alberta and Saskatchewan at the other end of the scale at minus 4 %.
The GTA saw five straight months of declines in its home price index earlier this year, but in August prices rose 2% month-over-month, prompting some to speculate on the fact that the market was beginning to stabilize.
Hogue, however, said he expects buyers to remain “on the defensive in the coming months” as the Bank of Canada pushes its key rate “deeper into restrictive territory.”
The Bank of Canada has already raised its benchmark rate by 0.25% to 3.25% so far in 2022 in an effort to reduce inflation and Hogue pointed out in his note that RBC expects the rate reaches 4% by December.
“For many potential buyers, the outlook for buying a home remains bleak,” he said. “The partial reversal of earlier massive price increases is but small comfort at a time when sharply higher interest rates are deeply reducing affordability.”
The average selling price for all GTA home types combined in August was $1,079,500, still representing a 0.9% year-over-year increase.
“Over the past six months, the MLS Composite Home Price Index has fallen 19% in Cambridge, 16% in Kitchener-Waterloo and London, 15% in Brantford and 13% in Guelph,” a he declared.
RBC has previously described the ongoing housing correction as “historic” and suggested it “will likely rank as the most pronounced correction of the last five national recessions.”