Canada’s largest bank has downgraded its outlook for the housing market and now forecasts a “historic correction,” worse than any national decline seen in this country in the past 40 years.
Soaring inflation has put the Bank of Canada on a course of aggressive hikes that will take its policy rate to restrictive levels by the fall, wrote RBC assistant chief economist Robert Hogue in the report that came out Friday.
“This will send more buyers to the sidelines, especially in British Columbia and Ontario where affordability is extremely stretched,” he said.
RBC now expects home sales to fall nearly 23% this year and 15% next year, and national benchmark prices to drop more than 12% from peak to trough by the second quarter of 2023.
The 42% drop in home sales from the peak in early 2021 will exceed the declines seen in the past four national downturns, Hogue said. In 1981-82 and again in 1989-1990 sales fell 33%; they fell 38% in 2008-09 and 20% in 2016-2018.
The 12% decline in prices by early 2023 will be the steepest correction in the past five housing downturns, he said.
The housing correction first began to take hold when the Bank started to hike rates in March, but the 100-basis point-rise on July 13 — an increase that brought variable rates within sight of fixed rates — will speed the cooling, Hogue said.