A new report from Canada’s largest bank suggests the current housing market correction could turn out to be one of the largest in Canadian history, and markets in Ontario could see some of the biggest impacts.
Locally, the average home sale price in Kitchener-Waterloo has seen four straight months of declining prices.
The RBC report comes following home prices in the Waterloo Region soaring during the pandemic as the average home price in Kitchener briefly passed the seven-figure mark.
The Kitchener-Waterloo Association of Realtors (KWAR) said the average cost of a detached passed $1 million in December, then it went up to $1.1 million in January, followed by the February report which showed an average price of just over $1.2 million.
In the report, RBC said it now expects the average home price across Canada to drop by 12 per cent by early 2023 from the highs of the February 2022 peak.
This would be the steepest correction of the past five national downturns.
“Buyers in high-priced markets are especially sensitive to interest rates and we believe will struggle the most in the period ahead. Our forecast has home resales in British Columbia and Ontario cumulatively sagging 45 per cent and 38 per cent, respectively, in 2022 and 2023, setting the stage for a home price index drop exceeding 14 per cent from quarterly peak to trough in both provinces. The magnitude of the downturn would rival that of the early-1990s in Ontario (when resales fell 41 per cent and prices 15 per cent) though come well short of the early 1980s’ episode in British Columbia (when resales slumped 62 per cent and prices 27 per cent),” the report reads.
Local housing prices are still out of reach for many, as a new report said you’ll need to be making more than $150,000 per year to afford to buy a home in Kitchener with a 20 per cent down payment.
Referencing the rising costs of inflation, the report says the aggressive approach by the Bank of Canada to increase interest rates will “send more buyers to the sidelines, especially in British Columbia and Ontario where affordability is extremely stretched.”
The Bank of Canada’s aggressive approach to combating inflation recently led to a 1 per cent rate hike, bringing Canada’s benchmark borrowing rate to 2.5 per cent.
The RBC report predicts the overnight rate will increase to 3.25 per cent by October.
RBC says this is not a collapse of the housing market, but rather a correction that will play out depending on individual markets.
“Still, we’d argue the unfolding downturn should be seen as a welcome cooldown following a two-year-long frenzy that put a huge financial burden on many new homeowners and made ownership dreams harder to achieve. While a more severe or prolonged slump cannot be ruled out, we expect the correction to be over sometime in the first half of 2023—lasting approximately a year—with some markets likely stabilizing faster than others,” the report reads.