The housing market in Canada is set for a significant shift, with home prices expected to peak this spring due to aggressive interest rate hikes from the Bank of Canada. According to Royal Bank’s (RBC) economics team, rising rates will prove to be a "game changer" for the housing market.
Low Rates Stoke Housing Demand
For years, low interest rates have fueled housing demand in Canada. However, this trend is now reversing, with the Bank of Canada increasing rates significantly. Economist Robert Hogue notes that this change in landscape will have a profound impact on the housing market.
Interest Rate Hikes: A New Reality
The Bank of Canada has raised rates to 1%, and RBC expects another 100 basis points over the next six months, reaching 2%. This is significantly above the pre-pandemic level of 1.75%. As noted by Hogue, Canadians have not seen such a large increase in interest rates in such a short period since the tightening cycle of 2005-2006.
RBC Cuts Housing Forecasts
In response to expectations of a more aggressive rate path, RBC has cut its housing forecasts. The bank now sees home sales falling by 13% this year and another 14% in 2023. Prices will peak this spring and then weaken modestly over the rest of the year.
Price Forecast for 2022 and 2023
RBC has increased its price forecast for 2022 to an 8.1% rise, due to a stronger-than-expected start to the year. However, it lowered its forecast for 2023, where it now sees prices falling by 2.2%. The national benchmark price could drop close to 5% on a quarterly basis from peak to trough.
Market Sentiment Sours
Hogue notes that market sentiment has shifted dramatically in response to the rate hikes. Local markets could experience a mild price correction, partly reversing outsized gains recorded in the past year.
Welcome Changes to the Market
While rising interest rates may seem daunting for home buyers, Hogue believes they will bring welcome changes to the market. These include more sustainable activity, fewer price wars, more balanced conditions, and modest price relief for buyers.
What This Means for Home Buyers
=====================================
The rate hikes from the Bank of Canada are likely to have a significant impact on the housing market in Canada. With prices expected to peak this spring, home buyers may need to adjust their expectations. However, as noted by Hogue, rising interest rates could bring welcome changes to the market.
Expert Analysis
=====================
Hogue’s analysis highlights the significance of the rate hikes from the Bank of Canada. As he notes, Canadians have not seen such a large increase in interest rates in such a short period since the tightening cycle of 2005-2006.
Rising Interest Rates: A New Reality for Home Buyers
The housing market in Canada is set for a significant shift, with home prices expected to peak this spring due to aggressive interest rate hikes from the Bank of Canada. As noted by Hogue, rising interest rates will prove to be a "game changer" for the housing market.
What’s Next?
================
As the rate hikes continue, it’s essential for home buyers to adjust their expectations and plan accordingly. With prices expected to peak this spring, home buyers may need to consider alternative options or wait until the market stabilizes.
The rate hikes from the Bank of Canada will have a significant impact on the housing market in Canada. As noted by Hogue, rising interest rates will bring welcome changes to the market. However, for home buyers, it’s essential to be prepared and adjust their expectations accordingly.
Recommended Reading
========================
- A Cut in January, Then a Pause: What Jobs Data Mean for Bank of Canada and Interest Rates
- History is Foreshadowing the Worst of Times for Markets
- Investor: How Far Could Trump Go Using ‘Economic Force’ to Try and Annex Canada?
Share Your Thoughts
=======================
Join the conversation by sharing your thoughts on the impact of rate hikes on the housing market. What do you think is next for home buyers in Canada?
- Bundled Pricing: How the Best Mortgage Rates Increasingly Come with Strings Attached
- Howard Levitt: Trudeau’s Exit a Reminder of the Perils of Wrongful Resignation
Follow Us
=============
Stay up-to-date on the latest news and analysis by following us on social media.