Canadian home prices are likely to suffer a steep decline by the end of 2023
The downward trend in home prices emphasizes the importance of a diversified portfolio for Canadian investors and home owners, according to Dale Jackson, finance columnist at BNN Bloomberg.
“A dramatic reversal in the Canadian housing market is sending shockwaves through home owners counting on their properties to help finance their retirement,” Jackson wrote in a recent analysis.
“A home is the single largest investment for most Canadians and watching its value decline can be gut-wrenching. As the Bank of Canada boosts interest rates to combat inflation, early data is pointing to a steep drop in home sales activity and resulting price declines.”
While Jackson stressed that the eventual decelerations would be nowhere near a “bursting bubble”, he echoed an updated projection by Desjardins that pegged a home price decline of around 15% from the 2022 peak by the end of next year.
“What goes up, must come down,” Jackson said. “[But] compared with any other investment, the 15% decline that Desjardins is forecasting over a period of less than two years is pretty mild, especially if you factor in some of the double digit year-over-year increases before and during the pandemic.”
Read more: Canada housing affordability is at its worst in a generation – National Bank
Current home owners and investors are well placed to diversify through real estate investment trusts, Jackson suggested.
“There’s no limit to how diversified a REIT can be. InterRent REIT and Killam Apartment REIT, as examples, hold multi-unit residential properties across Canada. BTB REIT holds commercial, office and industrial properties concentrated in Quebec. RioCan and SmartCentres REITs hold traditional bricks and mortar retail businesses,” he explained.
“The move toward e-commerce has [also] increased demand for REITs that hold industrial properties specializing in warehousing, logistics and distribution.”
