Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Canada house prices to tumble 17.5% peak to trough, say analysts: Reuters Poll

Economy Nov 24, 2022 08:05AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Single family homes are seen against the skyline of Vancouver, British Columbia, Canada September 30, 2020. REUTERS/Jennifer Gauthier/File Photo
 
ROG
+0.98%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Indradip Ghosh

BENGALURU (Reuters) - Once burning-hot Canadian house prices are expected to tumble a total 17.5% from their peak, roughly double the fall during the 2008-09 financial crisis, in a slowdown already well underway, according to a Reuters poll of market experts.

A succession of rapid-fire Bank of Canada interest rate rises that has taken the overnight rate from near-zero to 3.75% in just eight months has removed some steam from the market, with a doubling in the average five-year mortgage rate to near 5%.

But after a more than 50% rise in house prices during the pandemic on top of what was already seen as one of the world's most expensive property markets, that expected fall would not be enough to bring prices to affordable levels.

With a debt to net disposable income ratio of 1.85, Canadian households are among the top most indebted in the world and more vulnerable to higher rates given their higher exposure to variable rate mortgages.

Peak-to-trough correction forecasts in the Nov. 8-22 poll of 12 property analysts ranged between 10% - about how much the market has already fallen - and 30%.

Tony Stillo, director of Canada economics at Oxford Economics, said higher mortgage rates and the panic run-up in prices during the pandemic had kept the average cost of housing "35% above the borrowing capacity of median income households."

"Our forecast for a 30% decline in house prices in conjunction with steady income growth, a stabilization in mortgage rates and stronger growth in housing supply...will cause house prices to return to an affordable range by late 2025," he said.

House prices need to fall 25% from peak to trough in order to make them affordable, according to the median response to an additional question. Responses ranged from 18% to 35%.

(Reuters Poll - Canada housing market outlook: https://fingfx.thomsonreuters.com/gfx/polling/byprljxxdpe/Reuters%20Poll%20-%20Canada%20housing%20market%20outlook.PNG)

That was in line with BoC Senior Deputy Governor Carolyn Rogers (NYSE:ROG) who said this week house prices needed to fall to restore balance to the housing market.

After rising 11.8% this year compared with 2021, average house prices were expected to sink 10.0% next year and increase 1.3% in 2024, lagging consumer inflation, according to the median forecast in the poll.

"We have a unique situation where demand has cracked and buyers can't qualify for, or afford, early-year prices. But, outside some areas, there's not a bounty of listings to choose from, and sellers are still able to say 'no thanks'," said Robert Kavcic, senior economist at BMO Capital Markets.

(Reuters Poll - Canada house price inflation outlook: https://fingfx.thomsonreuters.com/gfx/polling/akpeqznnypr/Reuters%20Poll%20-%20Canada%20house%20price%20inflation%20outlook.PNG)

Housing starts fell 11% last month as sellers held off listing in hope of a spring rally and surging borrowing costs dragged demand.

The central bank's overnight rate was priced by markets to peak at 4.25-4.50% next year as consumer inflation is well over three times the BoC's 2% target.

House prices in Toronto and Vancouver, regional epicenters of the biggest price booms in recent years, were forecast to drop 11.0% and 9.3% in 2023 after rising as much as 58% and 35% since the pandemic started.

Asked to rate average Canadian house prices on a scale of 1 to 10 where 1 was extremely cheap, 5 priced about right and 10 extremely expensive, the median forecast from 11 contributors rated it 8. For Toronto and Vancouver, the ratings were 9.

A majority of property market experts said the risk of a crash in house prices was low. During the financial crisis, U.S. house prices crashed as much as around 40% but the Canadian market fell only 9% then.

"In more 'normal' times before the pandemic, a 30% drop in house prices would be considered a crash. However, in the current context, where home prices surged 50% over just two years during the pandemic, a 30% price correction will still leave home values above pre-pandemic levels," added Stillo.

(For other stories from the Reuters quarterly housing market polls:)

Canada house prices to tumble 17.5% peak to trough, say analysts: Reuters Poll
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email