Canadian home sales could decline 23% in 2022: TD

Canadian home sales could fall by more than 20% in 2022 as interest rates rise, a new report from TD Economics says.

The recently published report says TD has “significantly” downgraded its home sales and price forecasts compared to March, as “monetary policy has tightened more acutely than anticipated.”

Rising borrowing costs will “weigh heavily” on housing activity, the report reads, with the expected peak-to-trough decline between the first quarters of 2022 and 2023 reaching 33%.

Housing activity should “begin to firm” beyond that but will remain at low levels through the end of 2023 as interest rates fall.

TD Economics says this will result in Canadian home sales experiencing a 23% annual average decline in 2022 and an 11.9% annual average decline in 2023.

With demand “substantially cooler,” average home prices are forecast to fall 19% on a peak-to-trough basis between the first quarters of 2022 and 2023. However, they will grow “modestly” thereafter.

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On a provincial level, Ontario and British Columbia will bear the brunt of the home sale and price decline. The report notes this reflects the “significant affordability deteriorations during the pandemic.”

In Ontario, TD Economics expects home sales to see an annual average decline of 31.7% in 2022, followed by a 13.3% pullback in 2023. Average home prices are forecast to rise 3.8% this year but decline by 9.4% in 2023.

BC home sales could see an annual average decline of 30.9% in 2022 and a 13.5% drop in 2023. Home prices are expected to rise an average of 3.2% in 2022, but fall by 8.1% in 2023.

Quebec’s “notable deterioration” in affordability will result in modest price growth, the report reads. Sales are expected to fall significantly in Alberta but will remain closer to pre-pandemic levels than in other provinces.

Home sales in Quebec could see a 16.0% annual average decline in 2022 and a 4.7% drop in 2023. Home prices are forecast to jump 8.3% in 2022 before falling 5.3% next year.

In Alberta, average annual home sales are expected to increase by 0.2% in 2022, but decline 17.8% in 2023. Average home prices could increase by 7.6% in 2022, but fall 1.2% in 2023.

TD Economics expects interest rates to rise an additional 175 basis points, reaching 3.25% by the fourth quarter of 2022. Since March, the Bank of Canada has raised rates three times. Currently at 1.5%, the next rate announcement is scheduled for July 13.