‘Local markets could experience a mild price correction’
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Home prices will peak this spring, after more aggressive interest rate hikes from the Bank of Canada prove a “game changer” for the housing market, Royal Bank’s economics team predicts.
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Low rates have been stoking housing demand in this country for years, but now the tide is turning and interest rates will rise “significantly,” economist Robert Hogue said in a report this week.
Measures to cool housing in the federal budget, and separate policies planned by Ontario and Nova Scotia, are further reasons for home buyers to pause.
“We now expect home resale activity to slow more quickly than previously anticipated and, perhaps more important, we see prices peaking this spring as market sentiment sours from extreme bullishness,” wrote Hogue in the note, dated April 20.
“In this altered landscape, local markets could experience a mild price correction, partly reversing outsized gains recorded in the past year.”
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Prices will peak this spring and then weaken modestly over the rest of the year, Hogue said. RBC increased its price forecast for 2022 to an 8.1 per cent rise, because of a stronger-than-expected start to the year. But it lowered its forecast for 2023, where it now sees prices falling by 2.2 per cent.
“We think the national benchmark price could drop close to five per cent on a quarterly basis from peak to trough,” said Hogue.
Expensive markets such as Vancouver and the Greater Toronto Area, which saw the biggest gains, will likely see the biggest declines.
But it’s not all bad, said Hogue.
“Rather than pose a major threat, we think rising interest rates are likely to bring welcome changes to the market — including more sustainable activity, fewer price wars, more balanced conditions, and modest price relief for buyers,” he wrote.
