The housing market crash is not over. However, it should prove slightly less severe in Quebec and stop before it has had time to erase all the gains made during the pandemic.
In June, analysts at Desjardins Group were told when they released their forecasts for the Canadian housing market that they saw the future as too dark. This week, just two months later, they were forced to admit that they were probably wrong… and issued an even bleaker prognosis.
So instead of an average 15% drop in Canadian property prices, from their peak in February 2022 to the end of 2023, they now expect a drop of almost a quarter (23%). Quebec will come out of this better, particularly as prices and borrowing are still proportionately lower there and wages are rising faster, but it won’t be saved. From only 2% so far, the fall will not stop at 12%, as was still thought at the beginning of the summer, but could go up to 17%.
But here again, not everyone will be in the same boat. Some regions, like Quebec City, could remain more or less untouched, while others, like Greater Montreal, could see a total price decline of at least 20%.
The number of homes sold (-17% this year and -17% in 2023 in Quebec) should follow the same path, as well as the number of homes started (-11% and -22%), although, in these last cases , at a very different rate for single-family homes (-34% and -36%) and condominiums (-13% and -21%).
The latest housing boom couldn’t last forever. In a shortage situation amplified by an explosion in demand for larger homes far from city centers triggered by the COVID-19 pandemic, Canada has finally seen supply come back into balance with demand. We should eventually see surplus situations emerge in certain places over the next few months.
So instead of the oversupply stories of recent months, we could see properties sold below asking price, Mouvement Desjardins economists Hélène Bégin and Chantal Routhier observed Thursday in an analysis of the Quebec and Ontario markets. “This is a 180 degree turn from the recent frenzy. »
This reversal of the situation is being accelerated by the Bank of Canada raising interest rates much more pronounced than expected. Still at its lowest level of 0.25% in March, its key rate is 2.50% today and should be at 3.25% or 3.50% before the end of the year, depending on the analyst you are talking to. .
This increase in the cost of money not only affects mortgage rates, it also raises the income thresholds that borrowers must have to be able to take a loan from their bank and reduce the amounts that the latter will be willing to advance. to them
We are witnessing “the worst deterioration in housing affordability in 41 years,” analysts at the National Bank said on Tuesday. “The typical mortgage on a home in Canada now requires 63.9% of income to be paid, the highest percentage since 1982.”
Some homeowners may decide to renovate the home they already have rather than trade it in, especially since the 40% increase in the cost of this type of work last year has eased somewhat since then, as has the price of materials. of construction. But rising borrowing costs will also weigh there, warn Hélène Bégin and Chantal Routhier. Many other households will be condemned to remain as tenants longer than desired, which will also weigh on rental prices (+4.8% this year and +5.5% in 2023 in Quebec).
This housing market cooling period will last until the Bank of Canada feels compelled to ease monetary tightening again to breathe a little more life into the economy, which should happen by the end of next year, Desjardins predicts.
Even then, the owners will not have lost all the ground gained during the pandemic. The average property price at the end of 2023 in Quebec should still be 20% higher than in February 2020.
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