Progressively higher living and borrowing costs will take their toll, Crown corporation says
![CMHC: Housing market activity to decelerate further than expected](https://cdn-res.keymedia.com/cdn-cgi/image/w=1000,h=600,f=auto/https://cdn-res.keymedia.com/cms/images/us/074/0270_637933972671349662.jpg)
Housing demand could decline further than expected amid a prolonged bout of higher living expenses and mounting borrowing costs, according to the Canada Mortgage and Housing Corporation.
“Further geopolitical tensions could increase commodity prices while reoccurring COVID outbreaks could prolong supply-chain disruptions,” CMHC said in a recent analysis.
This could further fuel inflation, with the worst impacts likely to be apparent in the short- to medium-term.
“Monetary policy may need to tighten even more with rates staying high … to tame households’ and firms’ expectations and bring inflation back to the 2% target,” the Crown corporation warned. “In the worst-case scenario, this could result in stagflation.”
Read more: Will there be a Canada housing market crash?
The dangers posed by inflation and debt levels on both the global and domestic fronts should not be underestimated, as well.
“The global financial system could weaken, burdened by high inflation rates and bigger government and private debt levels. Economic weakness among Canada’s trading partners and higher global interest rates would follow. This would weaken the Canadian economy through lower exports and less access or higher cost of access to capital,” CMHC said.
Risk-averse consumers with reduced purchasing power could comprise a significant portion of the market in the near future.
“A preference shift towards more affordable homes or regions could skew average prices further,” CMHC said. “The economy and housing markets have seen significant volatility as the pandemic unfolded. We expect uncertainties will remain over the short term.”