Fitch Ratings, a leading provider of credit ratings and financial commentary and research warns that Canada's real estate downturn will continue this year.
In its 2023 forecast, Fitch called for even lower home prices this year. After nearly three decades of solid price growth without correction, affordability bas never been this poor. A combination of increased rates and anemic demand, a cooling market is expected, accompanied by an increase in delinquencies.
Fitch Ratings' forecast is calling for prices to fall between five and seven percent this year, down 15 per cent from the peak. Prices are expected to return to growth in 2024.
“The fall will be driven by the continued rise in interest rates expected through 2023, inflationary pressures, a stagnant economy and declining affordability, which will dampen demand,” said Susan Hosterman, Senior Director of North America for Fitch Ratings.
The decline is considerable but much lesser than forecasts provided by other firms. Hosterman cited a supply imbalance, net immigration and rising rates. Nonetheless, they cautioned demand can weaken if the economy is hit with inflation cooling measures.
Fitch Ratings notes that affordability has never been this serious, "persistently high home prices" haven't experienced a material decline since the 90's. Fitch forecasts a 0.25% delinquency rate this year, an 11 basis point increase from 2022.
Lenders have been working with borrowers, as mentioned in the firm's forecast. Several banks have been giving amortization extensions to many borrowers. From a lender's perspective, it will be more costly, but will lower likelihood of default due to increasing rates.