Rising interest rates, steep inflation, and overall economic malaise are making a significant mark on the Canadian housing market -- and home prices are going to tumble further this season as a result, says one of Canada’s largest brokerages.

Poll data compiled for RE/MAX Canada’s 2022 Fall Housing Market Outlook Report forecasts Canadian home prices are set to drop 2.2% this fall, based on responses from brokers and agents.

That’s largely due to the rapidly rising cost of borrowing, says RE/MAX, which is leading many would-be buyers to simply sit out today’s market; a total of 44% of Canadians polled by the brokerage have temporarily put their homebuying plans on hold as a direct result of higher interest rates. A total of 22 out of 30 polled brokers said rising interest rates have affected housing demand in their local residential market this year, with some indicating it’s the largest factor influencing homebuyer and seller confidence.

READ: New Forecast Predicts Bank of Canada Will Hike Rates to 4.5%

Mortgage rates have spiked in recent months as the Bank of Canada has hiked its trend setting Overnight Lending Rate five times since March, bringing the benchmark up 300 basis points to 3.25%. That means today’s consumer borrowers are facing a Prime Rate of 5.45%, with all new mortgage applicants being stress tested in the 7% range. That’s thrown cold water on real estate values across the nation -- the Canadian Real Estate Association reports the average home price fell -3.9% year over year in August, with nearly $180,000 coming off from the market’s peak in February.

“While we are still facing significant housing supply shortages across the country, many markets are experiencing softer sales activity given recent interest rate hikes. This provides some reprieve from the unprecedented demand and unsustainable price increases we’ve seen across Canada through 2021 and in early 2022,” says Christopher Alexander, President at RE/MAX Canada. “However, the current lull in the market is only temporary. Until housing supply increases, these ‘boom’ and ‘bust’ cycles will likely be a recurring event.”

The good news -- market turmoil isn’t expected to last long term.

“Despite the fact that nearly half of Canadians are waiting to buy or sell a home, we’re confident that as economic conditions improve by mid-2023, activity will resume,” says Elton Ash, Executive Vice President, RE/MAX Canada.

“Timing the market for short-term investment is extremely difficult and rarely successful. But real estate as a long-term investment continues to yield solid returns. If someone needs to engage in the housing market, regardless of those cyclical peaks and valleys, being informed and working with an experienced real estate professional can help consumers clarify some of those unknowns and make the best decision possible.”

Ontario: Short Term Pain, But Balance to Return Next Year 

From a regional perspective, some provinces are poised to be hit harder than others. Ontario, in particular, will likely see declines in several of its higher-priced markets in the months to come, including a -6.3% price decline in Toronto, following a -35% decline in sales.

In fact, RE/MAX expects most Ontario markets, with the exception of Oakville and Mississauga, to see home prices remain steady, or to absorb declines between 2 - 10%. Oakville, as a predominantly luxury market, is anticipated to buck the trend, with a 2% price increase expected this autumn. 

Muskoka, meanwhile, continues to draw a steady stream of buyers, and is set to experience a 5% price increase. However, nearby Peterborough will see prices dip by 7%, given rising interest rates and a steeper stress test have been steadily eroding affordability in the area.

The brokerage notes that trends such as the return of condition offers have become prevalent across the province; however, persistently low supply won’t let prices slip too far; Durham, London, Sudbury, Ottawa, the Lakelands and GTA-Toronto are expected to regain balance in 2023.

Western Canada: Calgary Bucks the Sale Trend

“In regions such as Vancouver, BC, Victoria, BC, Kelowna, BC, and Edmonton, AB, RE/MAX brokers reported rising interest rates as a factor impacting local market activity, resulting in softening consumer confidence, fewer multiple offers from buyers, and a shift toward more balanced conditions between buyers and sellers,” reads the report, calling for price declines between 0 - 6.5%, and -3% specifically in Metro Vancouver, as unit sales fall -15%.

Calgary and Edmonton continue to be demand strongholds, however with prices to climb 3% and 1.5%, respectively. Sales are to be particularly strong in Cowtown, with RE/MAX forecasting a 25% increase this fall.

Eastern Canada: Prices Buoyed By Relative Affordability

Like the rest of the nation, Canada’s maritimes provinces have been hard bit by the impacts of rising interest rates, as well as the implications for an impending recession, which have dissuaded would-be buyers.

Rising rates was immediately felt in Charlottetown, PEI, says RE/MAX, with sales falling by almost half on a month-over-month basis, especially for properties in the $500,000 to $1M range.

However, Atlantic Canada continues to be a popular draw for out-of-province buyers due to its relative affordability, with most of its markets expected to see prices increases through the end of this year including Halifax, NS (+1.5%), Moncton, NB (+6%) and St. John’s, NL (+7%). The outlier is Charlottetown, PEI, where average residential sale price is expected to decline by 2% in the fall months. 

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