Canada’s housing agency sees ‘modest’ recession with 15% price drop

CANADA’S national housing agency forecasts a big drop in housing prices as the economy enters a “modest recession” by the end of the year.

National average housing prices are expected to fall nearly 15 per cent by the second quarter from the peak level of C$770,812 (S$802,056) earlier this year, Canada Mortgage & Housing (CMHC) said in a report on Thursday (Oct 13).

“The higher-than-expected rise in interest rates and the resulting deterioration in economic and income conditions will continue to reduce housing demand in the coming quarters,” the agency said.

Even with the market softening, housing affordability will not improve as high borrowing costs offset the benefit of lower prices, CMHC’s economists said. Rents will continue rising as those priced out of buying a home are forced to lease one instead.

The new forecast is a big change from CMHC’s projections in July that national home prices would dip just 5 per cent by mid-2023. CMHC chief executive officer Romy Bowers said in September that the forecast would be updated to a 10 per cent to 15 per cent drop because “inflation has been more persistent than we originally anticipated and the Bank of Canada is taking more aggressive action”.

The central bank has raised its policy rate by three percentage points since March to 3.25 per cent and more increases are coming, driving up mortgage costs. CMHC sees the rate peaking at 4 per cent by the end of the year, with the Canadian economy starting to recover from a recession by the second half of 2023.

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On an average yearly basis, home prices will fall by 6.2 per cent in 2023, CMHC said, before rising modestly in 2024 as the economy recovers. BLOOMBERG