The pandemic housing boom is winding down. Economists forecast a 10-20% price correction?
Economists are predicting that Canadian home prices will fall as much as 20 per cent this year as higher interest rates begin to hit the country’s booming real estate market. Mortgage rates are expected to climb again as the Bank of Canada aggressively hikes interest rates to deal with runaway inflation. Economists expect higher borrowing costs will lead to a significant price drop in some of the hottest markets.
Toronto-Dominion Bank economist Rishi Sondhi forecasts a double-digit percentage decline in the national average home price over the March to December period this year. Bank of Montreal senior economist Robert Kavcic predicts a 10-per-cent to 20- per-cent drop in the home price index in certain regions. “When we speak of housing correction it’s not a question of if, but where, how much and for how long,” Mr. Kavcic said in a research note.“Suburban markets in Ontario look shakiest,” he said.
The housing slowdown has been triggered by a rapid increase in borrowing costs over the past few months. The Bank of Canada’s next interest-rate announcement is scheduled for June 1. The central bank is widely expected to hike interest rates by another 50 basis points.
Realtors have described a sudden change in buyer sentiment. Some homes are not fetching any offers and sitting on the market for upward of a month. That is in contrast to the first two years of the pandemic when homes drew dozens of bidders and sold for hundreds of thousands of dollars over the listed price.
We are still seeing multiple offers happening in certain areas of the city, but we are not seeing the same frenzy that was present in the early months of the year. Showings have dropped off and buyers don’t seem to be in hurry to buy.
Don’t forget what CHMC said back in March 2020:
“Canada’s national housing agency is predicting home prices could plummet up to 18 per cent and mortgage arrears could soar to 20 per cent”
CMHC president and CEO Evan Siddall points to unforeseen circumstances as the reasons for their forecast error. CHMC lost its credibility after their failed housing crash prediction.
No one really knows what will happen to the real estate market. No one has a crystal ball to predict the future. We know we are state of change, and we will all learn to adjust to the changing market.