Hot Canadian real estate market to run out of steam in 2022: Reuters poll

BENGALURU, Dec. 7 (Reuters) – Double-digit house price inflation in Canada will run out of steam next year, but affordability is still almost certain to worsen in one of the fastest growing real estate markets. hot spots, according to a Reuters survey of analysts.

A rush to buy homes ahead of expected Canadian interest rate hikes next year is boosting the housing market in the final quarter, with prices rising 18.2% in October from the period of the previous year.

Additional foam in the market, fueled by investors fueling the perception that prices will continue to rise, prompted the Bank of Canada to warn recently of increased risk of a correction.

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“Affordability is unlikely to improve next year, as prices are expected to rise, although interest rates also rise,” said Rishi Sondhi, economist at TD Economics, who expects this. that house price inflation slows down considerably next year.

“We believe rate hikes will weigh on demand, but not push it up, as the macroeconomic environment should remain favorable for sales.”

Average home prices in Canada are expected to rise 18.6% this year, compared to a 16.0% increase forecast in an August poll.

But those increases are expected to slow significantly, to 5.0% in 2022 and 2.0% in 2023, according to the survey of 15 market analysts that was conducted from Nov. 17 to Dec. 6 and released on Tuesday. That’s compared to increases of 3.2% and 2.6%, respectively, in the August poll.

Only two respondents expected prices to drop in 2023, and modest amounts.

When asked what would have the most impact on house prices next year, nine of 14 respondents said higher interest rates or tighter monetary policy. The other five cited supply constraints.

A follow-up question about the number of basis points of interest rate hikes that would significantly slow housing market activity had a median forecast of 100, with forecasts in a range of 75 to 175 basis points.

Canada’s central bank is expected to start raising interest rates by the end of the third quarter of next year.

“It’s unlikely that one or two rate hikes will have a significant impact, but if we see four or more rate hikes in 2022, that should take some of the demand out of the market, especially from sensitive investors.” interest rates, ”said John Pasalis, President. from the brokerage and research firm Realosophy Realty.

For many first-time buyers, prices have skyrocketed beyond their reach and a shortage of housing units has only made their woes worse.

“Investors, pinball machines and speculators, who the Bank of Canada says account for more than 20% of home purchases, have worsened the severe imbalance between supply and demand, have driven prices even higher. and made housing more vulnerable to a correction, “he added. said Tony Stillo, director of economics for Canada at Oxford Economics.

All 15 analysts who answered a question about affordability over the next two to three years said it would get worse.

“Out-of-range home prices will invariably drive more Canadians to rent, especially if they have to live close to their place of work. However, people who can work remotely will continue to migrate out of more expensive urban centers and drive qualifying, ”said Stillo.

(For more articles from Reuters quarterly housing market surveys:)

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Reporting by Swathi Nair; surveys by Indradip Ghosh and Sarupya Ganguly; Editing by Ross Finley and Paul Simao

Our standards: Thomson Reuters Trust Principles.

Penny D. Jackson