Vast majority of economists expect Canada's home prices will fall in 2023

Mar 15 2023, 2:33 am

After Canadian home prices increased by about 30% over the past two years, a downward trend is now in sight, according to the vast majority of economists.

Nearly nine-in-10 economists (88%) now expect home prices in the country will fall in 2023, with 55% also believing the drop could be as much as 10% between January and December of this year — on top of the drop experienced to date since March 2022.

Based on comparison website Finder’s new pooling of opinions by 16 experts, 75% agree with the Bank of Canada’s March 2023 update decision to hold its key interest rate at 4.5%, which will allow the impact of the previous rate hikes to continue be felt — but without putting further strain on Canadians with existing mortgages.

“The Canadian economy is very sensitive to interest rates because of elevated household debt and overvalued housing, and is likely already in the early stages of an emerging recession,” said Tony Stillo, the director of Canada Economics.

Moreover, 100% of the experts believe insolvencies will rise in 2023 amongst homeowners who are unable to keep up with mortgage payments, and day-to-day living costs due to rampant inflation.

“Households and businesses have been forced to incur a lot of debt. Maintaining the same living standard with almost no salary increments is difficult amidst rampant inflation. Utility and grocery bills are out of control,” said Nikola Gradojevic, professor of finance at the University of Guelph.

Most believe Canada’s inflation will not be tamed anytime soon, with 64% of the experts indicating inflation will not decrease to the healthier range of 1% to 3% until 2024 or later. Currently, inflation is still hovering at about 6%.

Concordia University senior economics lecturer Moshe Lander says if it takes around 18 months for the Bank of Canada’s biggest interest rate increases to have maximum impact, the effect of those hikes in the middle of 2022 should occur in late 2023. If inflation rates drop by about 0.25% per month, then inflation will hit the upper ceiling of the healthier target range in early 2024.

On average, with consumer spending falling and recent job loss reports, the panel of experts forecast the unemployment rate will rise by about 1% to 5.9% by late 2023 — compared to 5% in January 2023.

Kenneth ChanKenneth Chan

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