Royal LePage has cut its home price forecast for this year amid a series of aggressive interest rate hikes which have pushed up the cost of borrowing and cooled the demand for housing.
The realtor had been forecasting that home prices across Canada would rise 15 per over the course of 2022, led by a 16.5 per cent increase in the GTA.
But it now says that it expects prices in the GTA will only be up approximately three per cent by the fourth quarter of 2022. Its Canada-wide forecast calls for the average price of a home to be up about five per cent by the fourth quarter of 2022.
The forecast comes on the heels of the Canada Mortgage and Housing Corporation adjusting its price predictions for the country’s real estate downward as well. It now says that it expects average prices to fall by up to five per cent between the first quarter of this year and the second quarter of 2023 should interest rates continue to rise.
“We have significantly reduced our outlook for 2022, however home prices are still forecast to end the year higher than 2021 and well above pre-pandemic norms,” Royal LePage President and CEO Phil Soper said in a news release. “Following record price gains across the country, numerous markets in southern Ontario and parts of Greater Vancouver – specifically those that saw some of the highest price appreciation over the last two years – experienced a second quarter decline. I expect this highly unusual downward movement in home values will be short-lived as the country’s chronic housing shortage has not been resolved.”
As recently as April, Royal LePage was predicting that the average price of a home in the GTA would top $1.3 million by late 2022, however it is now forecasting an average price of $1,153,394 by the end of the year. That is more or less in line with the $1,119,800 that the average home in the GTA was changing hands for in late 2021.
The more pessimistic forecast comes after home prices in the GTA dropped for a fourth consecutive month in June and sales plunged by 41 per cent.
The Bank of Canada is also widely expected to raise its key overnight rate by 0.75 per cent today, which could further increase the cost of borrowing.
In the release, Soper said that Royal LePage does believe that the second quarter of 2022 will end up having “produced most of the price declines we will see this cycle” with values more or less holding for the rest of the year.
He also said that the current downturn will “create pent-up demand” which could eventually push prices higher once economic conditions change.
“We don’t expect to see much movement in housing values through the balance of the year,” he said. “Canada is experiencing strong growth in household formation, so positive economic news, such as a signal that rates have reached a level where inflation can be managed, should trigger a return to rising property values. The small percentage of consumers who purchased properties at 2022’s February/March peak will have seen a short-term decline in the value of their homes, but there is little doubt they will soon make up that lost ground.”
According to Royal Lepage the second quarter of this year marked the first quarter-over-quarter decline in house prices since early 2019, with resale values falling by 4.9 per cent on average across Canada.
The drop was more pronounced in the Greater Toronto Area, where average prices dropped by about 8.1 per cent.
The slowdown was not equally felt across the city’s housing market, however.
Royal LePage says that average condominium prices were only down 3.3 per cent in the second quarter, compared to a 9.5 per cent drop in detached home prices.