Canadian house prices fall 17.5% from peak to trough, analysts say

Canadian house prices are expected to fall 17.5% from their peak, nearly double the decline during the 2008-2009 financial crisis, 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, took some steam out of the market and nearly doubled the average five-year mortgage rate. Five%.

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

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 revised peak-to-trough forecasts ranged from 10% (how much the market has already fallen) to 30%.

Tony Stilo, Canadian economics director 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, stabilizing 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. will return to,’ 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 over three times the BoC’s 2% target.

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%.

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