Once burning-hot Canadian house prices are expected to tumble a total 17.5% from their peak, roughly double the fall during the 2008-09 financial crisis, in a slowdown already well underway, according to a Reuters poll of market experts.
A succession of rapid-fire Bank of Canada interest rate rises that has taken the overnight rate from near-zero to 3.75% in just eight months has removed some steam from the market, with a doubling in the average five-year mortgage rate to near 5%.
But after a more than 50% rise in house prices during the pandemic on top of what was already seen as one of the world’s most expensive property markets, that expected fall would not be enough to bring prices to affordable levels.
With a debt to net disposable income ratio of 1.85, Canadian households are among the top most indebted in the world and more vulnerable to higher rates given their higher exposure to variable rate mortgages.
Peak-to-trough correction forecasts in the Nov. 8-22 poll of 12 property analysts ranged between 10% – about how much the market has already fallen – and 30%.
Tony Stillo, director of Canada economics at Oxford Economics, said higher mortgage rates and the panic run-up in prices during the pandemic had kept the average cost of housing “35% above the borrowing capacity of median income households.”