Home prices to plunge 15% from peak levels, CMHC says

Canada will tip into a mild recession later this year and home prices will decline by 15 per cent off peak levels by mid2023, according to a gloomier new forecast released Thursday by the country's national housing agency.

Patrick Perrier, chief economist at the Canada Mortgage and Housing Corporation and author of the agency's Fall 2022 Update, said national average home prices are now expected to fall to $655,190 by the end of the second quarter of 2023, down from a high of $770,812 in the first quarter of 2022.

That 15-per-cent dip is a big increase from what the agency projected in July, when it had said that a “high interest rate scenario” would see average home prices decline by five per cent over the same period.

On an annual basis, Perrier sees prices growing 2.6 per cent in 2022 compared with 21.3 per cent in 2021 and then declining 6.3 per cent in 2023 and rising again by 2.1 per cent in 2024.

But those who think declining prices will make housing more affordable may be mistaken.

“Some might think that house prices going down means affordability will improve, but this is not what we see,” Perrier said in an interview, noting that lower prices will be more than offset by higher interest rates and increasing demand from a growing population.

A recession that he now sees beginning before the end of 2022 won't help matters. Perrier added that the downturn will not be as grievous as the last recession and a recovery will begin in the second half of 2023.

To make the housing markets affordable, he feels more supply is needed and it needs to come quicker to keep pace with demand and take pressure off pricing.

Meanwhile, the Bank of Canada is expected to continue to raise interest rates to combat inflation, which will persist until mid 2024.

“This policy rate rise is also increasing households' and businesses' borrowing rates,” Perrier said. “As inflation converges back to its target range by mid-2024, the Bank of Canada policy rate will also decline and stabilize at 2.5 per cent, the mid-point of its estimate for the neutral policy rate.”

Factors including a growing population and rising income will put pressures on prices and rents, the CMHC said.