Shrutee Sarkar

BENGALURU, (Reuters) – Canadian house prices will fall to 10% as aggressively raised interest rates by the Bank of Canada are revealed in a Reuters poll of experts on property markets.

However, even though prices may fall slightly in 2023 due to rising mortgage costs, this won’t make it affordable, according to the poll.

A combination of low borrowing costs, pandemic-related stimulus actions and a 50% increase in home prices during the past two years has led to an unprecedented rise in housing prices. This led to the Canadian government putting together a budget that will make housing more affordable.

However, home prices dropped more than 6 percent in April. This suggests that the market has already cooled. [CA/POLL]

John Pasalis (president of Realosophy Realty and researcher) stated that there has been a downward trend in home prices over the past 2 months. This trend is likely to continue as long as interest rates trend upwards.

Pasalis stated that a further 100-bps BoC policy rate increase and a 100-bps rise in 5-year mortgage rates (mortgage), rates would have an impact on the housing market.

A LOT OF WORK

According to a March poll, average house prices are expected to grow 10.0% this year. This is up from 9.2% in March. While the increase was expected to weaken through the remainder of this year, stronger-than-expected gains so far have resulted in a higher annual average forecast median.

The May 10-30 poll conducted by 13 market experts found that home prices would fall by 2.2% in the next year, and climb 0.5% in 2024. This compares to the rises of 1.5% & 2.0% in March’s poll.

When asked about affordability, 9 of the 13 respondents stated that it would get worse over time, with three saying it would be worse. It would increase, the remaining four respondents said.

Robert Hogue is a senior economist with RBC. He stated: “Higher interest rates will pose enormous challenges for buyers.

This is not something we expect to be prevented by the federal budget for 2022. New federal initiatives will either not fully benefit homebuyers or provide only marginal support. One example is the doubling of the amount for tax credits for first-time homebuyers.

A further question was asked by more than 85% of the analysts (12 of 14), who said that affordability in home-rental markets would be worsening or substantially worsening over the next two year. Two of them said that it would increase.

When asked how high interest rates would need to go to slow down housing market activity, they were 3.25% at the median, with projections ranging from 2.0% to 6.0%.

Expect the BoC to increase rates by 50 basis point on Wednesday to 1.50%. Another Reuters poll indicated that rates would reach 2.50% by the end of 2020.

(For additional stories, see the Reuters Quarterly Housing Market Polls: