Royal LePage has cut its home price forecast for this year amid a series of aggressive interest rate hikes that have pushed up the cost of borrowing and dampened housing demand.
The realtor had forecast home prices in Canada to rise 15% during 2022, driven by a 16.5% increase in the GTA.
But he say now that it expects prices in the GTA to increase only about 3% by the fourth quarter of 2022. Its pan-Canadian forecast predicts that the average price of a home will increase by about 5% by the fourth quarter of 2022.
The forecast follows the Canada Mortgage and Housing Corporation’s downward adjustment to its price forecast for the country’s real estate. This say now that he expects average prices to fall by up to 5% between the first quarter of this year and the second quarter of 2023 if interest rates continue to rise.
“We have significantly reduced our outlook for 2022, but house prices are still expected to end the year higher than in 2021 and well above pre-pandemic norms,” the chairman and CEO said. of Royal LePage, Phil Soper, in a press release. “Following record price increases across the country, many markets in southern Ontario and parts of Greater Vancouver – especially those that have seen some of the strongest price appreciation in the past two years – experienced a decline in the second quarter. I expect this highly unusual downward movement in home values to be short-lived as the country’s chronic housing shortage has not been resolved.
As recently as April, Royal LePage predicted the average home price in the GTA to exceed $1.3 million by the end of 2022, but now forecasts an average price of $1,153,394 d end of the year. This more or less matches the $1,119,800 the average GTA home would change hands for at the end of 2021.
The most pessimistic forecast comes after GTA home prices fell for a fourth consecutive month in June and sales fell 41%.
The Bank of Canada is also expected to raise its overnight rate by 0.75% today, which could further increase the cost of borrowing.
In the statement, Soper said Royal LePage believes the second quarter of 2022 will end up having “produced most of the price declines we’ll see this cycle” with values more or less flat for the rest of the year.
He also said the current downturn will “create pent-up demand” that could eventually push prices higher once economic conditions change.
“We don’t expect to see much movement in home values throughout the year,” he said. “Canada is experiencing strong growth in household formation, so positive economic news, such as a signal that rates have reached a level where inflation can be contained, should trigger a return to higher property values. The small percentage of consumers who purchased properties at the peak of February/March 2022 will have seen a short-term decline in their home values, but there is no doubt that they will make up for this lost ground soon.
According to Royal Lepage, the second quarter of this year marked the first quarter-over-quarter decline in home prices since the start of 2019, with resale values falling 4.9% on average in Canada.
The decline was most pronounced in the Greater Toronto Area, where average prices fell about 8.1%.
However, the downturn has not been felt the same way in the city’s housing market.
Royal LePage says average condo prices fell just 3.3% in the second quarter, compared to a 9.5% drop in single-detached home prices.