The Bank of Canada's June and July interest rate increases essentially put a stop to the housing market’s recovery, says analyst
Prospective home buyers will see little relief on the affordability front until the central bank lowers rates, according to Sal Guatieri, senior economist and director of economics at BMO.
“Just two extra taps on the rate brakes was all it took to bring Canada’s fledgling housing recovery to a screeching halt this summer,” Guatieri said in his latest analysis.
“Resale transactions fell for the first time in six months in July, as a pullback in pricey Ontario and British Columbia overshadowed gains in less-expensive Alberta, Saskatchewan, and Quebec.”
Guatieri said that on the national level, affordability is at its worst since at least 1988, with approximately 39% of the median income needed to purchase an average-priced home in Canada today.
“Relief will come only if interest rates fall sharply and prices lag incomes for a lengthy period,” Guatieri said. “With many markets swinging back toward balanced conditions after a brief fling in sellers’ territory, prices could move sideways for the next half year, which will help. But buyers won’t see meaningful relief until the Bank of Canada eases policy, possibly starting next spring.”
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Affordability is still a few years away
Tony Stillo of Oxford Economics has recently warned that Canadian homes will likely not become anywhere near affordable for the foreseeable future, as the upward trend in home prices is “far from over”.
“We think we’re halfway through the upswing we’ve seen in resale housing markets this spring, [and] we think it’s waning,” Stillo said in an interview with BNN Bloomberg. “It will be a couple of years before we see improvements in affordability.”
This is despite his predictions of home prices touching their peak this summer, followed by a 10% decline by early 2024.
“We don’t think housing affordability Canada-wide will be within the reach of the average household until 2027, once prices settle down to a lower level, incomes grow, and interest rates [gradually] return to a somewhat lower level,” he said.