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Canadian Property Prices Set to Decline, But Housing Less Affordable Than Ever

Economic Indicators Sep 30, 2022 13:12
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By Ketki Saxena

Investing.com -- Earlier today, Canada Mortgage & Housing Corp. revised its forecast for the expected decline in Canadian housing prices by mid-2023. CMHC now predicts a 10% to 15% decline in house prices next year, compared to its July call for a 5% decline. 

CMHC Chief Executive Officer Romy Bowers noted “We’ve seen that inflation has been more persistent than we originally anticipated and the Bank of Canada is taking more aggressive action, so we’re in the process of revising our forecasts”. 

The revised forecasts bring CMHC’s predictions closer in line with private sector economists, including at TD (TSX:TD), RBC (TSX:RY), and Desjardins, who forecast declines of over 20%. 

The predicted fall in housing prices is by no means a consensus. With private sector economists amongst the most bearish on Canadian property prices, bodies such as the Canadian Real Estate Association and ReMax offer a very different forecast. 

 A report from Re/Max Canada earlier this week forecasts the national average home sale price in Canada will fall, but only by 2.2%  in the final months of the year. Earlier this month, CREA said that it expects the national average home price is expected to rise  4.7% by the end of the year.

Despite the forecasted decline in Canadian house prices, housing affordability in Canada is getting worse, not better. As interest rates rise, sending home ownership costs skyrocketing, and buyers delay deals, putting further pressure on rental markets, Canadian housing has become steadily more unaffordable. 

As per a report this week by Robert Hogue, assistant chief economist at RBC, even though prices have dipped since February, it has never been harder for Canadians to buy a home. Total ownership costs including mortgage payments now take up 60% of a typical household’s income, higher than the previous record of 57%.

“The Bank of Canada’s rate hiking campaign since March has added hundreds of dollars to mortgage payments that come with a home purchase,” Hogue said in a report yesterday. “This, along with the jump in property values during the pandemic have made it more difficult than ever to become a homeowner in Canada.”

Hogue noted that the “Increases to date, as well as further upcoming Bank of Canada hikes, will intensify upward pressure on ownership costs over the second half of this year.”

Variable-rate mortgages at Canadian banks, which were at less than 2% at the beginning of the year, are now over 5% and set to rise still further, with the Bank of Canada expected to hike rates another 75 bps this year. 

And the pressure isn’t on homeowners alone. As more buyers defer purchasing property and further pressure rental markets, combined with inflationary pressures, renting a home is also becoming more expensive. 

As per Rentals.ca’s September national rent report, the average rent for all property types listed on Rentals.ca in August hit a three-year high of $1,959 per month, up 1.3% from July and 11.1% from August 2021. Rents have now risen 16.8% since hitting a low of $1,676 in April 2021.

Canadian Property Prices Set to Decline, But Housing Less Affordable Than Ever
 

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Nicolas Duran
Nicolas Duran Oct 04, 2022 9:48
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