Canada’s Housing Market In The Middle of Corrections

High-interest rates could have influenced the correction of the housing market that is currently ongoing in Canada. According to one of the country’s largest banks, home prices could decline more than 12 percent, Bloomberg reports.  Robert Hogue, RBC’s economist, also predicts that the number of total home sales in the country will decline by 42% by next year.

Read More: Canada’s Interest Rates Still Not The Highest They’ve Ever Been

Ontario and British Columbia will be the main focus of these corrections, which some say are “historic”. Sure, the fall in sales will be a bit bigger than what it was in the 1990s, however, the reality is – 2023 will beat that record by only 1%. In Ontario at that time, home sales fell by 41% and housing prices fell by 15%. British Colombia, on the other hand, dealt with prices falling by 27% and sales falling by 62% in the 1980s.

Read More: Ontario Housing Getting Too Expensive

Even though the prices and sales will drop a bit, that doesn’t necessarily mean the housing market will collapse, says RBC. Instead, this situation should be looked at from a positive point of view: the cooling of the market will be a bit faster this way.

That of course will lead to new homeowners in the future and the removal of the stigma of home ownership and equity being a luxury – a popular opinion for some millennials.

During COVID, the splurge in home ownership skyrocketed – with historically low-interest rates and sales going up by 47% in December 2020, 48% of millennials got their hands on their own houses. But, most of them relied on their family helping out financially.

Adult Children Were Given $10B To Buy Homes

However, the basic rule of supply and demand led to the rise in prices, which are abnormally high right now. That then led to making the rest of the renting population extremely hesitant to buy their own home, especially with the current interest rates.

The ongoing corrections should cool off all of that and take the weight off the homeowners’ shoulders in the future when the drops in prices and sales cause interest rates to stop rising and go back to what we’re used to, hopefully.

Read More: Three Tips For Homeowners Struggling With Paying Off The Mortgage

The housing market correction and the post-pandemic recovery might also influence the ‘return to normal’ of housing prices in specific areas as well. According to a recent research by the Bank of Canada, COVID-19 greatly influenced the rise of house prices in the suburbs, causing centrally located homes’ prices to drop – which is not how things usually work.

Typically, home prices downtown are higher than in the suburbs, because of various factors: the land is scarce downtown, shorter commutes to work, more restaurants and bars, easy access to public services or transport, etc.

During COVID, we didn’t need any of that and would rather spend time in our backyard or somewhere not hectic. Many lockdowns and closures of restaurants and bars kept us hanging out within our four walls, so it was better to be somewhere further away from downtown, more calm and private.

That led to a higher demand for suburban housing and therefore higher house prices in the suburbs. The whole thing resulted in a 10% price gap between centrally located houses and houses 50km away from the city core. In 2019, the price difference was about 26%.

A lot of questions remain unanswered when it comes to housing in Canada and it will be interesting to see how things unfurl. The Wilson Team will, as always, maintain focus on the market and update the site as we learn more.