By Swathi Naair and Sarupya Guly

BENGALURU, (Reuters) – Canada’s double-digit price rise will slow down next year. However, affordability in Canada, one of the most coveted property markets around, is almost certain to increase, according to a Reuters poll.

A rush to purchase homes ahead of expected increases in Canadian interest rates https://www.reuters.com/world/americas/bank-canada-q3-2022-rate-hike-expected-q2-rise-possible-2021-12-03 next year is boosting the housing market in the final quarter, with prices skyrocketing 18.2% https://www.reuters.com/article/canada-economy-housing-idCAKBN2I01EP in October compared to the year-earlier period.

Extra froth in the market, driven by investors fueling perceptions that prices will keep rising, has prompted the Bank of Canada https://www.reuters.com/markets/us/canadas-housing-market-higher-risk-correction-says-bank-canada-2021-11-23 to recently warn of an increased risk of a correction.

Rishi Sondhi of TD Economics said, “Affordability will not improve next year as prices must march higher, while interest rates creep upwards too.” He also expects house-price inflation to slow significantly in the next year.

Rate hikes are expected to increase demand. However, we believe they will not affect sales.

Canada’s average home prices are forecast to grow 18.6%, against a predicted 16.0% increase in August.

These increases will slow down to 5.0% by 2022 and 2.0% in 2023 according to the poll which was done between Nov. 17 and Dec. 6, and published on Tuesday. This is compared with the increases of 3.2% and 2.6% in August’s poll.

The only two people who responded expected the prices to drop in 2023 were those that were not expecting it, with modest changes.

When asked what they thought would most impact house prices the next year, 9 of 14 respondents said that higher interest rates and tighter monetary policies. Five others cited limited supply.

Following up on the question of how many interest rate rises will significantly slow housing activity, there was a median forecast for 100 with ranges of 75- 175 basis point.

Canada’s central bank is expected to start raising interest rates by the end of the third quarter https://www.reuters.com/world/americas/bank-canada-q3-2022-rate-hike-expected-q2-rise-possible-2021-12-03 next year.

John Pasalis (president of Realosophy Realty and researcher) stated, “One to two rate increases are unlikely will have any meaningful impact. But if there is four or more rate rises in 2022 this could take some market demand, particularly from interest-rate-sensitive investors.”

Prices have skyrocketed for many home-buyers, and there is a shortage of housing units.

Tony Stillo of Oxford Economics Canada, the director of economics in Canada, stated that “investors, house-flippers, and speculators” have increased the demand-supply imbalance. This has made it more difficult for housing to correct.

The affordability of housing over the next two- to three year period was a concern for all fifteen analysts.

Canadians will continue to rent despite the high cost of housing, even if they live near their workplaces. Stillo stated that people who are able to work remotely will still migrate away from more costly urban centers and “drive until they qualify.”

(For more information from the Reuters quarterly polls on housing: