Royal LePage has "significantly" downgraded its full-year forecast with some markets softening more than others amid rising rates
Interest rate hikes and fears of economic slowdown are having an impact on Canadian home prices.
The national aggregate home price was still rising in the second quarter of 2022 – up 12% from a year earlier - but moderation is evident in some key markets, driving the quarter-on-quarter figure down 5% to $815,000.
According to the Royal LePage (RLP) House Price Survey, released today (July 13), this decrease is the first quarterly drop in more than three years and is reflective of the softening of prices in some markets that saw exceptional gains during the pandemic.
With the Bank of Canada making more aggressive rate hikes than expected, RLP has revised downwards its forecast for the fourth quarter of 2022 to growth of 5%.
“We have significantly reduced our outlook for 2022, however home prices are still forecast to end the year higher than 2021 and well above pre-pandemic norms,” said Phil Soper, RLP’s CEO.
Recently, Desjardins predicted that house prices would drop by 15% from their February 2022 peak by the end of 2023.
Inventory challenge
With numerous markets in southern Ontario and parts of Greater Vancouver experiencing outsized price gains in recent years, these markets are expected to moderate, albeit temporarily.
“Barring a sharp increase in the inventory of properties for sale in this country, which seems unlikely given our exceptionally low level of unemployment, growing population and miniscule rate of mortgage default, we expect that the second quarter produced most of the price declines we will see this cycle,” continued Soper.
With strong household formation in Canada, driven by peak millennials buying homes plus immigration; the buoyant jobs market; and the high cost of building new homes, the value of existing homes is not expected to suffer a large correction.
Soper expects a bounceback for those markets that do see declines this year, but not until positive economic signals such as more normal inflation leading to an easing of rate rises.
The small percentage of consumers who purchased properties at 2022’s February/March peak will have seen a short-term decline in the value of their homes, but there is little doubt they will soon make up that lost ground,” he concluded.
