This text is part of the special Real Estate section
The first effects of successive key rate increases by the Bank of Canada are being felt in the real estate market. With a drop in transactions and an increase in the number of properties for sale, prices have already begun to drop in Quebec. Should we fear the bursting of the real estate bubble? Picture of the situation.
Prices have already started to fall with the drop in the number of property sales, observes Hélène Bégin, senior economist at Desjardins Group. Unlike the other Canadian provinces, Quebec reached its price peak in April rather than last February. “Thereafter, we experienced small decreases, a little each month”, to amount to 5.5% in September 2022 compared to the peak, she calculates.
The situation is mainly explained by a drop in demand due to the inability of buyers to qualify for the acquisition of a property, estimates the director of the service of market analysis at the Professional Association of Real Estate Brokers of Quebec (APCIQ), Charles Brant. “It is certain that with such high price levels and interest rates rising quickly, the purchasing power of households is reduced,” he notes.
Lower price drops than elsewhere in Canada
In Canada, some municipalities are exposed to a real estate bubble. The Swiss bank UBS has also listed Toronto first in its world list of cities that are at risk, while Vancouver is in sixth position.
The markets most prone to such a correction are those that have experienced the most excessive overbidding, explains Ms.me Begin. Outside Quebec, average prices also fell: about 15% in Ontario and nearly 10% in British Columbia. Desjardins Group predicts that the fall in prices will continue to reach 23% in Canada by the end of 2023. “The markets are already quite corrected. They will continue to do so at a slightly slower pace,” says the economist.
In Quebec, Desjardins Group forecasts a total price correction of 17%. “It’s serious”, summarizes Mme Bégin, who specifies that prices have not fallen in the province for twenty years. The fall in prices will be more significant in places where the overbidding has been more present, such as Greater Montreal, Outaouais and Estrie.
However, the price correction will be less severe in Quebec than elsewhere in the country, believes Mr. Brant. “Prices are still relatively lower than those seen in other provinces,” he says.
A more balanced but unaffordable market
While homeowners had the upper end of the stick for the past few years, buyers are finally starting to have some bargaining power.
The market still remains in favor of sellers, believes Mr. Brant, who nevertheless observes a rapid rebalancing process. “Clients can increasingly impose a building inspection, request a promise to purchase conditional on financing. People are less inclined to acquire properties without legal warranty,” he explains.
“We are almost in balance”, summarizes for his part Mme Begin. “At the beginning of the year, there were often 15, 20, even 30 buyers for the same house. There, it’s not that at all”, even if the properties still continue to sell “relatively well”, she observes. However, she specifies that the acquisition of a house remains “unaffordable” everywhere in the country, including in Quebec.
The economist predicts that the Bank of Canada will raise its key rate again this fall, and perhaps this winter, before interest rates stabilize. “If the Canadian economy falls into recession, we could see a reduction in interest rates starting at the end of 2023. Affordability, at that time, could be a little better,” suggests Hélène Bégin.
Current owners need not fear the sharp price correction, she said. “It seems appalling that prices are falling by 17% in Quebec. But even with such a drop, property prices at the end of 2023 are going to be far above the pre-pandemic level, ”says the economist.
However, some homeowners who bought a house at higher prices during the health crisis, who are in debt and who are forced to sell quickly, could be at risk of losing money. “That is the worst situation. On the other hand, for people who bought a few years ago, before the pandemic, even if the prices drop by 17% in Quebec, they will still have made a significant gain. »
This special content was produced by the Special Publications team of the To have to, pertaining to marketing. The drafting of To have to did not take part.