Canadians considering the purchase of a first home should be able to benefit from a slight drop in prices in 2023. Home prices could fall by 5% in the country, if the central bank adopts a “tougher” approach to combat inflation, estimates the Canada Mortgage and Housing Corporation (CMHC).
Posted at 5:47 p.m.
This drop would occur in a scenario where the key rate reaches 3.5%, according to a CMHC note published on Monday.
In the case of a more moderate increase to 2.5%, house prices would still fall by 3% by mid-2023, according to the organization.
Economists expect the Bank of Canada to continue raising its key rate in the coming months, starting with a 0.75 percentage point hike on Wednesday. The key rate would thus go from 1.50% to 2.25%.
Fixed rates approaching 6%
If the central bank opts for a scenario of more muscular increases, “the fixed rate for five-year mortgages would rise to 5.7%” at the end of 2022, indicates CMHC chief economist Bob Dugan. They are currently around 5.2%.
“Rising rates will slow economic growth, which will increase unemployment and decrease wage growth,” writes the SHCL. What make access to property more difficult, which will lower prices.
“Weak recession”
CMHC is counting on an increase in gross domestic product (GDP) of 3.4% for 2022 and 0.7% for 2023 under the “strong” scenario of an increase in the key rate. Economic growth would then bottom out. Canada would experience a “mild recession” for a short period of time, late 2022 and early 2023.
Such a scenario would push the unemployment rate up to 7% in the country. If the central bank opts instead for a limited increase in the key rate to 2.5%, CMHC predicts that the unemployment rate will reach 6.2% in 2023.
From 2024, the Company expects a return to growth and stabilized mortgage rates. According to the organization, housing prices will then rise again.
“Supported by rising household income and immigration, house prices are expected to return to positive but moderate growth,” the note said. Continued high prices over the outlook period will weigh on the affordability of home ownership. »
Homeowners are therefore not about to see the value of homes drop for the trouble.