Massive Bank of Canada moves are dragging down housing market activity, according to a new report
Royal LePage has said that it is tempering its expectations for home price growth this year after a noticeable 4.9% quarterly decline in Q2, offsetting a 12.1% annual gain.
In its latest forecast, the firm said that the aggregate home price across Canada in Q4 2022 will be approximately 5% higher year over year – a stark retreat from the April projection of a 15% annual increase for the final quarter.
The massive rate hikes implemented by the Bank of Canada, and the resulting declines in housing demand across the largest markets, were cited by Royal LePage as the main drivers of its revised prediction.
“Some of the heat that was driving the market cooled during [Q2] as rising interest rates, coupled with economic uncertainty, undermined consumer confidence and pushed buyers to the sidelines,” said Phil Soper, CEO of Royal LePage. “We have significantly reduced our outlook for 2022; however, home prices are still forecast to end the year higher than 2021 and well above pre-pandemic norms.”
Read more: CMHC: Housing market activity to decelerate further than expected
In a separate report, Royal LePage warned that inflationary pressures will continue to weigh on Canadian housing activity.
“Data flow over the past month, including another upside surprise on inflation, a worrying increase in inflation expectations, a further decline in the already record-low unemployment rate, and accelerating wage growth, all suggest monetary policy needs to get away from stimulative territory as soon as possible,” the firm said.
Currently, the BoC’s overnight rate is at 2.5%, which Royal LePage considers to be right in the middle of the neutral range.
“Tougher medicine will be needed to get inflation under control and we look for the policy rate to rise to a restrictive 3.25% by October,” it added.
