A new TD report says home sales in Canada could fall by nearly a quarter on average this year and remain low through 2023.
The report, prepared by TD Economics and published on Wednesday, said the bank “significantly” lowered its forecasts for home sales and prices compared to March, “as monetary policy tightened more sharply than expected”.
TD Economics expects increased borrowing costs to “weigh heavily on housing activity,” with the peak-to-trough decline, or business cycle high and low, between the first quarters of 2022 and 2023 reaching 33 percent.
Housing activity should start to “strengthen” beyond that, the report said, but remain subdued as interest rates fall.
This would lead to an average annual decline of 23 per cent in Canadian home sales in 2022, before returning to an average decline of 11.9 per cent in 2023.
Canadian median home prices between the first quarters of 2022 and 2023 are also set to decline due to cooler demand, with TD Economics forecasting a peak-to-trough decline of 19 per cent, followed by modest growth.
The report comes after a series of rate hikes by the Bank of Canada amid record inflation.
The bank raised its key interest rate by 50 basis points, or half a percentage point, to 1.5 percent in June.
The bank previously raised its key interest rate in March and April, with the next rate announcement scheduled for July 13.
The TD Economics report said it expects the key rate to reach 3.25% by the fourth quarter of this year.
Bank of Canada Deputy Governor Paul Beaudry said last month that the key interest rate could rise above the previous target of three per cent.
The TD Economics report also breaks down the average annual growth and decline in home sales and prices by province, with British Columbia and Ontario expected to see some of the biggest declines in 2022 and 2023, which TD Economics says reflects “ significant deterioration in accessibility during the pandemic.”
Quebec will see similarly modest price growth, with sales in Alberta expected to “decline significantly from their record highs” but remain closer to pre-pandemic levels through 2023 than British Columbia and Ontario.
“Prices should hold better elsewhere in Canada, with better affordability conditions in the country cushioning other markets in the Prairies and Newfoundland and Labrador,” the report said.
“Strong population growth and tight conditions should offer near-term price support for the rest of the Atlantic, although activity in this region should cool as rates rise.”
A report released last month by Desjardins suggested Canadian home prices could fall 15 percent to roughly $675,000 in December 2023, down from their peak of just over $790,000 on average in February 2022 .
However, Desjardins says $675,000 is still nearly 30 per cent higher than in December 2019, when the median home price in Canada was $530,000.
With files from CTV News and The Canadian Press
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