Home prices in Canada are expected to fall in 2023; The BoC will rise by 75 basis points on September 7

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

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BENGALURU, Sept 2 (Reuters) – Soaring house prices in Canada will fall sharply next year, but not enough to make them affordable, as the Bank of Canada is expected to keep raising interest rates and hold them longer, according to Reuters polls.

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

The Aug. 12-30 poll of 14 real estate analysts showed average home prices in Canada would rise 10.3% this year, slower than the current pace of around 11%.

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Although prices are down nearly 6% since the Bank of Canada began raising the overnight rate in March, analysts say it will take years for affordability to return, if ever.

Average house prices are expected to fall 7.8% next year, significantly more than the 2.2% drop forecast 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 drop, down to 18.2% next year. Home prices in Toronto and Vancouver are expected 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 property market boom certainly is. And the trough is likely still several months away, as our central bank still has work to do,” said Robert Hogue, deputy chief economist at RBC.

More than three-quarters of economists, 20 out of 25, who took part in a separate study from Aug. 26 to Sept. 26. 1 poll said the Bank of Canada would raise rates by a still-high 75 basis points next week after a full one percentage point hike in July, taking it to 3.25%.

“The BoC’s outsized 100 basis point rate hike announced on July 13 threw ice water on the market – disqualifying some buyers from getting a mortgage,” Hogue said.

“Our expectation of an additional 100 basis point rate hike over the next two rate announcements … will no doubt continue to cool things down.”

What is not slowing down much yet is consumer price inflation.

Despite falling slightly in July to 7.6% from a nearly 40-year high of 8.1% in June, BoC Governor Tiff Macklem said it “would remain too high for quite some time. time,” implying the central bank, which has already raised rates by 225 basis points. points this year, there is still a lot to do. Read more

The BoC was expected to gain another 25 basis points in October to 3.50%. All 17 economists responding to an additional question said the risks were skewed towards a higher overnight funding rate than they currently expected.

Seventeen of 21 said that once the Bank of Canada hits its peak, it was more likely to hold rates for an extended period than to cut them fairly quickly.

This should keep pressure on economic activity, particularly in the rate-sensitive real estate sector, where prices have become out of reach for many people. Read more

When asked to rate average Canadian home prices on a scale of 1 to 10 where 1 was extremely cheap, 5 reasonably priced and 10 extremely expensive, the median forecast of 13 contributors rated it 8 For Toronto and Vancouver, the rating was 10.

A median of seven responses to a separate question showed that prices needed to drop nearly 18% to be fairly valued. A few said they needed to fall a lot more.

“The fact is, home prices have been disconnected from income and rents for some time,” said John Pasalis, president of Realosophy Realty.

“Even if benchmark home prices fall another 30% nationally, that will only bring prices back to February 2020 (pre-COVID) levels that weren’t affordable at the time, but buyers will also face higher interest rates compared to 2020.”

(For more stories from Reuters Quarterly Housing Market Surveys:)

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Reporting by Indradip Ghosh; Poll by Swathi Nair; Editing by Ross Finley and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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