CMHC sees home prices falling 15% from peak levels as economic forecast downgraded

Article content

Canada will tip into a mild recession later this year and home prices will decline by 15 per cent off peak levels by mid-2023, according to a gloomier new forecast released Thursday by the country’s national housing agency.

Article content

Patrick Perrier, chief economist at the Canada Mortgage and Housing Corporation and author of the agency’s Fall 2022 Update, said national average home prices are now expected to fall to $655,190 by the end of the second quarter of 2023, down from a high of $770,812 in the first quarter of 2022.

Article content

That fifteen per cent decline is a substantial increase from what the agency project in July, when the CMHC had said that a “high interest rate scenario” would see average home prices decline by five per cent over the same period.

On an annual basis, Perrier sees prices growing 2.6 per cent in 2022 compared with 21.3 per cent in 2021 and then declining 6.3 per cent in 2023 and rising again by 2.1 per cent in 2024.

But those who think declining prices will make housing more affordable may be mistaken.

Article content

“This policy rate rise is also increasing households’ and businesses’ borrowing rates,” Perrier said.  “As inflation converges back to its target range by mid-2024, the Bank of Canada policy rate will also decline and stabilize at 2.5 per cent, the mid-point of its estimate for the neutral policy rate.”

Even with normalizing interest rates two years from now, a growing population and rising household income — along with insufficient growth in housing supply — will continue to put upward pressures on prices and rents.

National housing starts averaged about 254,000 units in the first half of this year. According to CMHC, housing starts will decline to 244,000 in 2023 before recovering in 2024 with 270,000 units.

“Canada must increase the housing supply to progress toward affordability for all Canadians. However, starts must sustainably increase given the estimated magnitude of the housing supply gap of nearly 2 million units as of 2021. This gap will grow to 3.5 million units by 2030 if past construction trends are maintained,” the report said.

• Email: [email protected]