When will house prices bottom in Canada? RBC Announces Spring – National

One of Canada’s big banks is calling for the country’s cooling housing market to bottom out in the spring before fully adjusting to rising interest rates.

RBC deputy chief economist Robert Hogue said in a report Friday that homebuyers were “on the defensive” as the Bank of Canada continues to raise interest rates. The central bank hiked 75 basis points last week and reported rates will need to rise further in the coming months as core inflation remains elevated.

But the higher cost of borrowing has had a chilling effect on the housing market, with the Canadian Real Estate Association (CREA) reporting on Thursday that August home sales were down 1% from July and 24.7% compared to the same last month. year.

CREA also lowered its forecasts for residential activity and price growth. He now expects home sales to fall 20% by the end of 2022 from last year’s peak.

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Hogue’s forecast is even more dire, however, predicting a 23% drop in year-over-year sales by the end of this year and a further 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 an earlier call of 3.5%.

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“Higher interest rates will prevent more buyers from getting a mortgage and reduce the size of a mortgage that others can qualify for,” Hogue wrote.

He added that “fewer and fewer buyers active in the market – and more constrained by their budget – are slowing down prices”.

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

In the spring, he expects house prices in Canada to bottom about 14% below the peak reached in February 2022.

That drop would be most pronounced in Ontario and British Columbia, he added, calling for a 16% drop in house prices from peak to trough in the two provinces. Alberta and Saskatchewan, meanwhile, would only see a 4% drop in prices, Hogue predicts.

Hogue’s estimates are more conservative than other market forecasts.

TD Bank said in late August that it expects an “unprecedented” 20-25% decline in home prices in the first quarter of 2023 from year-ago highs.

The Caisse populaire Desjardins also expects home prices to fall by nearly 25% by the end of 2023.

— with Canadian Press files

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