The soaring house prices we are currently facing are expected to drop sharply next year. But this price drop may still not make houses affordable since the Bank of Canada keeps raising interest rates.
Near zero interest rates and already high prices in one of the hottest housing markets in the world will fuel the decline in prices. Average prices have risen this year by 10.3% but this is slower than the pace of the previous which was 11%.
The hike in interest rates brought on by the bank of Canada in March has caused a 6% decline in prices. But it is expected to take years for affordability to set in. In 2023 we are expecting the average house prices to drop by 7.8%. This is a significant drop since the last prediction three months ago was 2.2%. If we actually see this decline, it will be the biggest decline since 2005.
Price Drops Expected in Different Cities
The forecast for Vancouver and Toronto predicts prices will drop by 7.3% and 8.5% respectively. While the pandemic is not over, the pandemic-era of the housing market boom is. The bottom is likely months away.
The 100 basis point rate hike by the Bank of Canada on the 13th of July disqualified buyers from getting a mortgage. We expect the next two rate announcements to continue to cool things down. The only thing not cooling down is consumer price inflation. It is expected to remain high for some time reaching an almost 40 year high in June of 2022.
The Disconnect Between Home Prices and Income
Home prices have been far disconnected from rent and income for quite a while. Even if there was a benchmark fall of 30% across the nation the pre-COVID prices which were not even affordable to begin with is where we would end up. But now, buyers are faced with higher interest rates than those of 2020.