By Ketki Saxena
Investing.com -- A Reuters poll of property analysts shows that Canadian house prices are likely to see a total 17.5% decline from peak to trough as the Bank of Canada’s interest rate hikes cool the economy.
The range of forecasts for a decline in Canadian housing prices carried between 10% (the current level of decline) and 30%.
Canadian housing prices have seen a 50% increase during the pandemic, which means that housing prices will remain well above pre-pandemic levels.
House prices in Toronto and Vancouver were forecast to drop 11.0% and 9.3% next year, after rising as much as 58% and 35% since the pandemic started.
Despite the decline, Canada will remain one of the least affordable property markets globally. House prices need to fall 25% from peak to trough in order to make them affordable, according to the median response from the analysts surveyed by the poll.
Tony Stillo, director of Canada economics at Oxford Economics is amongst those calling for a 30% decline in housing prices across. Stillo notes that the pandemic driven bubble had raised the cost of housing prices “35% above the borrowing capacity of median income households.”
Reuters also notes that with a debt to net disposable income ratio of 1.85, Canadian households are amongst the top most indebted in the world.
This also makes Canadians more vulnerable to higher interest rates. The Bank of Canada’s rate hike spree has taken its overnight rate from 0.25% to 3.75% t in just eight months, doubling the average five-year mortgage rate to near 5%.
On a positive note, the analysts see the expected decline as an adjustment, rather than a housing crash.
“In more ‘normal’ times before the pandemic, a 30% drop in house prices would be considered a crash”, Stillo notes. “However, in the current context, where home prices surged 50 per cent over just two years during the pandemic, a 30% price correction will still leave home values above pre-pandemic levels”.