The economic landscape is rapidly becoming less hospitable for Canada\u2019s housing market. With inflation touching four-decade highs\u2014and threatening to climb even further in the near term\u2014the Bank of Canada is now embarked on a more aggressive course that we believe will take its policy interest rate to restrictive levels by the fall. This will send more buyers to the sidelines, especially in British Columbia and Ontario where affordability is extremely stretched. <\/p>\n
The first signs of a market correction emerged soon after the Bank initiated its rate liftoff in March. We expect the downturn will deepen in the coming months with both resale activity and home prices reaching lower levels than we previously anticipated. We project home resales to fall nearly 23% this year and 15% next year in Canada, and the national benchmark price to drop more than 12% from peak to trough by the second quarter of 2023. We expect local outcomes to vary widely with the priciest, more interest-sensitive areas facing larger declines, and relatively affordable markets showing greater resilience. <\/p>\n
The outsized 100 basis-point rate increase our central bank delivered on July 13 will no doubt speed up the market\u2019s cooling phase in the near term. While the move won\u2019t necessarily result in a higher terminal point\u2014we still expect the overnight rate will reach 3.25% by October\u2014it\u2019s a big bite for borrowers to swallow that will spoil or delay homeownership plans for many buyers. The hike took variable mortgage rates roughly up to par with fixed rates, effectively shutting the last window of super cheap borrowing costs available to buyers. <\/p>\n