Housing correction commences

Housing correction commences

Desjardins : 15% decline is likely

A new report released by Desjardins' economics department suggests the country's housing market is likely to experience a fairly significant housing correction, as interest rates continue to rise and market activity dwindles.

In a note to clients this morning, Randall Bartlett, Desjardins' Senior Director or Canadian Economics along with Senior Economist Helene Begin, said prices are likely to fall to drop 15 per cent form from this February's peak, by the end of next year.

“Looking ahead, we believe ever-higher borrowing costs are going to weigh on housing market activity as increasingly interest-sensitive households batten down the hatches for the impending storm. This is expected to lead to sustained weakness in sales activity, thereby keeping persistent downward pressure on prices,” they said.

“While some Canadians may lose their sleeves, we don’t expect Canadian households on the whole to lose their shirts.

According to the Canadian Real Estate Association, home prices have dropped progressively for the last two months, after a hitting a record average of $816,720 in February.

This decline followed the Bank of Canada's sequential benchmark rate hikes, first introduced to curb inflation. The bank raises its rate by a half per cent in each of the last two months - the last time the bank had pushed forward hikes this high, was over 20 years ago.

“As we look ahead to how the national housing market correction will play out at the provincial level, in some ways it’s expected to be the inverse of what we saw during the pandemic,” Desjardins explained.

“For instance, those provinces that experienced the most dramatic price gains -- notably the Maritime provinces -- should see the largest corrections. In contrast, those provinces that saw home prices increase the least -- the Prairie provinces and Newfoundland and Labrador—should see the least correction coming out of the pandemic.”

“Communities within a few hours’ drive of Toronto are likely to see sales activity and prices cool the fastest as borrowing costs rise and commuting becomes more common,” they said.

“But again, we don’t anticipate average home prices in any of these regions to fall below their pre-COVID starting points due by and large to high levels of international migration and ongoing hybrid work arrangements.”

Overall, Desjardins says the correction should bring the Canadian housing market to more balanced levels.

“It looks as though the Canadian housing market correction we expected has begun, though it’s still concentrated in a small number of markets. But there’s no need to panic,” they said.

“While a correction in the range of 10 per cent to 20 per cent is likely by the end of next year in most provinces, average home prices are expected to remain above the pre-COVID level and trend. As such, the anticipated correction should bring more balance to the Canadian housing market.”