Scared of buying home during these high interest times?

Even bigger home price drops seen looming as interest rate forecasts rise Canada’s expected 20% price drop deepest among advanced economies except New Zealand


The higher expectations for interest rate hikes climb — and they are climbing — the bleaker the outlook for global housing markets gets.

Capital Economics has revised its forecast for the peak in interest rates for major developed markets upwards by 50 to 100 basis points, and now expects rates to peak at between 3 and 5 per cent.

Even higher rates will put more pressure on housing markets, and Capital now expects bigger price drops in some of the more vulnerable markets, including Canada.

Here Capital predicts a peak to trough price drop of about 20 per cent, the deepest among advanced economies except for New Zealand.

Economists at TD are also raising their rate forecasts and downgrading their housing outlook.

They now see home sales bottoming out 20 per cent below pre-pandemic levels by early 2023 and staying subdued for the rest of the year.

hey have also downgraded their housing price forecast and see prices falling by more than 11 per cent in 2023.

Evidence that the bottom for housing markets is still a ways away showed up in early reports from local real estate boards as sales and prices fell broadly across Canada in September.

Sales in Toronto fell 11 per cent from the month before to the lowest level since 2009, excluding the lockdown in the spring of 2020, said RBC assistant chief economist Robert Hogue in a report last week.

And in Montreal the market correction is gaining speed, he said. Sales were down 10 per cent in August from the month before and an estimated 6 per cent in September, compared with an average drop of 1.7 per cent per month between February and July. September’s sales were the lowest in seven years, excluding the spring 2020 lockdown.

Some areas of the country, however, are holding their own, Hogue said. Calgary stands out amid the weakness seen in other markets, with sales remaining above pre-pandemic levels and close to the previous all-time peak. RBC expects the province’s strong economy, a rebound in in-migration and the relative affordability of the market, to continue to fuel housing demand here for the time being.

While weakening housing markets are unlikely to bring an early halt to rate hikes, economists agree, they could be a reason for central banks to quickly pivot to rate cuts once inflation is under control, says Capital.

“In those countries where inflation falls back most rapidly, including for the U.S., Canada, Australia and New Zealand, we expect rates to be falling by end-2023,” wrote Vicky Redwood, Capital’s senior economic adviser.

So expect more interest rate hikes. Bank of America economists predict the Bank will continue hiking but at a reduced pace.

“Interest rates impact the economy with a lag and the BoC would want to reduce as much as possible the risk of tightening too fast, without giving in its objective of bringing inflation to the target,” wrote BofA economist Carlos Capistran in a note after the data was released.

BofA is calling for a 50 basis point hike on Oct. 26 on the way to a 4.5 per cent terminal policy rate.

Written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.