Canadian home prices likely won’t fall much further because of the country’s continued shortage of new homes, even as rising interest rates curb some demand in the market, says the deputy chief economist of the Canada Mortgage and Housing Corporation (CMHC).
Speaking to CTV National News Toronto correspondent Heather Butts, CMHC’s Aled ab Iorwerth says that because housing supply remains a problem in many parts of Canada, first-time home buyers will have a hard time getting into the market.
“We’ve seen a pretty big drop in prices, but there’s such a shortage of new home construction in Canada that this relentless growth in demand is just going to continue into the future,” Iorwert said.
“I don’t know exactly when it will start again, but the lack of supply means prices can’t fall too much.”
A report released Friday by Royal LePage found that the median home price in Canada in the fourth quarter of 2022 fell 2.8 percent to $757,100 compared to the end of 2021 — marking the first annual decline since late 2008 during the financial crisis — even though prices are still well above pre-pandemic levels.
It comes after Canada’s central bank tried to curb inflation by raising its key interest rate seven consecutive times since March 2022, from 0.25% to 4.25%.
Economists also forecast at least a mild to moderate recession for 2023.
An increase in the Bank of Canada’s interest rates, in turn, leads to higher mortgage rates.
“I don’t think their intention is to really target housing prices,” Iorwert said. “Their intention is really to get inflation under control. But the main effect of that is going to be through the housing market.”
Over time, as people refinance their mortgages, they will do so at higher rates, meaning they will have less opportunity to spend or save, he said.
Household debt is already at troubling levels in Canada, Iorvert added, and the challenges aren’t just affecting homeowners.
“If you’re looking for a new place to rent, the rent is very high, so the whole rental market is stretched,” he said. “So there are a lot of challenges in the housing system right now.”
With files from The Canadian Press and CTV National News Toronto correspondent Heather Butts
Add Comment