By Ketki Saxena
Investing.com -- Joining the chorus of calls for a decline in Canadian housing prices, the Canada Mortgage and Housing Corporation (CMHC) is now forecasting a 14.3% peak-to-trough decline in housing prices by Q2 2024. The forecast compares to the Crown Corporation’s July prediction for a 5% decline in prices over the same period.
In a report today, CMHC cites higher than expected interest rates, and ongoing inflationary pressures cutting into consumer spending power have resulted in slowing demand.
However, CMHC warns that despite the decline in home prices, housing affordability is unlikely to improve as rising rents, higher mortgage rates and reduced household income in 2023 impact enters’ ability to purchase homes.
The report also notes that “Rental affordability pressures will increase with rental demand as fewer renter households can access ownership”, making rent more expensive. “Given limited supply, pressure on rental markets — and rents — should increase, thereby worsening already challenging rental affordability conditions.”
CMHC believes the drop in affordability and housing price decline will coincide with a period of modest recession in Canada, bringing about a strong “increase in the cost of living and [a] predicted decline in employment and income conditions”.
The agency believes the modest recession will be short-lived,l beginning by the end of 2022 and starting to recede by Q3 2022.
CMHC also expects the decline in housing prices to be short-lived. The report states that “Canada’s house prices will resume their upward trend in the second half of 2023 as demand rises with the recovery in economic and income conditions and mortgage rates begin normalizing”.