The GTA real estate market showed signs of life in August with the average benchmark price rising for the first time in months but a new report from RBC is warning that the correction “isn’t over yet.”
In a note to clients on Thursday, RBC Assistant Chief Economist Robert Hogue warned that anticipated interest rate hikes in the coming months will “disqualify more buyers from obtaining a mortgage and shrink the size of a mortgage others can qualify for.”
That, he said, will only exacerbate a housing correction which has been underway since March and isn’t likely to end until the spring.
“We think the market will adjust to higher interest rates by early 2023. Any recovery will likely take a few months to tighten demand-supply conditions, placing the bottom for prices around spring time (overall for Canada),” he said. “We expect benchmark prices will be down approximately 14 per cent from the recent peak nationwide. On a provincial basis, we project Ontario and British Columbia to record the largest peak-to-trough declines at -16 per cent and place Alberta and Saskatchewan at the other end of the scale at negative four per cent.”
The GTA saw five straight months of declines in its home price index earlier this year but in August prices rose two per cent month-over-month, prompting some to speculate that the market was beginning to stabilize.
Hogue, however, said that he expects that buyers will remain “on the defensive in the coming months” as the Bank of Canada takes its policy rate “deeper into restrictive territory.”
The Bank of Canada has already increased its benchmark rate from 0.25 per cent to 3.25 per cent so far in 2022 in a bid to tamp down inflation and Hogue pointed out in his note that RBC expects the rate to reach four per cent by December.
“For many potential buyers, home purchasing prospects remain grim,” he said. “The partial reversal of earlier massive price increases is small comfort at a time when sharply higher interest rates cut deeply into affordability.”
The average selling price for all GTA home types combined in August was $1,079,500, which still represents a 0.9 per cent year-over-year increase.
“Over the past six months, the composite MLS home price index plummeted 19 per cent in Cambridge, 16 per cent in Kitchener-Waterloo and London, 15 per cent in Brantford and 13 per cent in Guelph,” he said.
RBC has previously described the ongoing housing correction as ‘historic’ and has suggested that it is likely to “rank as the steepest correction of the past five national downturns.”
