‘Historic’ housing correction underway in Ontario: report

A “historic” housing correction is currently underway in Canada and the more expensive markets of Ontario and British Columbia are likely to be the “epicenter” of the recession. a new report of RBC suggests.

GTA home prices soared during the pandemic, rising nearly 36 percent year over year in February.

But the aggressive Bank of Canada interest rate hike campaign has weighed on the market ever since, which has now seen four straight months of price declines.

In its report, released last week, RBC said it now expects average home prices in Canada to decline about 12 per cent from the February peak in early 2023.

He says that if that actually materializes, “it would rank as the steepest correction of the last five national recessions.”

The bank, however, says that the correction will play out differently depending on its market.

It says housing could be “more resilient” in markets that are already relatively affordable, with prices only expected to fall about three percent in Alberta and Saskatchewan and five to eight percent in most others. provinces.

But the bank warns that buyers in high-priced markets such as Ontario and British Columbia will be “particularly sensitive to interest rates” and could be left out in greater numbers.

That, in turn, could lead to a more significant correction in those markets.

“Our forecast is for existing home sales in British Columbia and Ontario to cumulatively fall 45% and 38%, respectively, in 2022 and 2023, setting the stage for a house price index decline of more than 14% from the quarterly maximum to the minimum in both provinces”. says the report. “The magnitude of the recession would rival that of the early 1990s in Ontario (when resales fell 41 percent and prices fell 15 percent), although it was well below the early 1980s episode in British Columbia (when resales fell 62 percent and prices fell 27 percent).”

The Bank of Canada raised its key overnight lending rate to 2.5% from 0.25% in recent months in a bid to curb inflation and warned that further increases are likely to be needed.

In its report, RBC said it now expects the overnight rate to reach 3.25 percent in October.

That, combined with higher mortgage stress test qualification rates, will “hinder extended buyers in all regions of the country” and ultimately prompt a “material correction,” the bank says.

However, RBC economist Robert Hogue notes in the report that the bank does not anticipate a “collapse” in house prices at this time.

“We would argue that the unfolding recession should be seen as a welcome cooling off after a two-year frenzy that has placed a huge financial burden on many new homeowners and made dreams of ownership harder to achieve,” he said. “While a more severe or prolonged downturn cannot be ruled out, we expect the correction to end sometime in the first half of 2023, lasting approximately one year, with some markets likely to stabilize faster than others. Strong demographic fundamentals (including soaring immigration) and low probability of overbuilding should prevent the market from entering a death spiral.”

The most recent data from the Toronto Region Real Estate Board suggested sales fell 41 percent year-over-year in June, while the median home price was still up five percent from the previous June at $1,146,254. .

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