[Analyse] The long slide of the real estate market

The housing market crisis is not over yet. In Quebec, however, it was to prove slightly less severe and stop before it had time to wipe out any gains made during the pandemic.

In June, at the time of publishing their forecasts for the Canadian housing market, analysts at Desjardins Group were told they were looking a little too bleak about the future. This week, just two months later, they had to admit they were probably wrong … and made an even grimmer forecast.

Instead of an average 15% fall in Canadian house prices from their peak in February 2022 to around the end of 2023, they now expect a fall of almost a quarter (23%). Quebec will fare better — particularly as prices and debt remain proportionally lower there and wages are rising faster — but it won’t be spared. From only 2% so far, the slide will not stop at 12%, as was thought at the beginning of the summer, but could rise to 17%.

But even here, not everyone is in the same boat. Some regions like Quebec City could remain more or less intact, while others like Greater Montreal could see an overall price drop of at least 20%.

The number of homes sold (-17% this year and -17% in 2023 in Quebec) should follow the same trajectory as the number of housing starts (-11% and -22%), albeit at very different speeds in the latter cases in single-family houses (-34% and -36%) and condominiums (-13% and -21%).

The recent housing market boom could not last forever. In a situation of shortages exacerbated by an explosion in demand for larger apartments away from city centers triggered by the COVID-19 pandemic, Canada has finally achieved a balance between supply and demand. Eventually, over the next few months, we should see surplus situations emerging in certain places.

So instead of stories of overbidding in recent months, we may see properties selling below asking price, observed Mouvement Desjardins economists Hélène Bégin and Chantal Routhier in an analysis of markets in Quebec and Ontario on Thursday. “This is a 180 degree turn from the recent frenzy. »

This reversal was accelerated by the Bank of Canada’s much larger than expected rate hike. From a low of 0.25% in March, the policy rate is 2.50% today and should be 3.25% or 3.50% before the year end according to the analyst you’re talking to.

This increase in the cost of money not only affects mortgage rates, but also raises the income limits borrowers must have to borrow from their bank and reduces the amounts that the bank can 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 home mortgage in Canada now requires 63.9% of income to be repaid, the highest percentage since 1982.”

Until 2024

Some homeowners may choose to renovate their existing home rather than alter it, especially as the 40% increase in the cost of this type of work has slowed somewhat in the last year, along with building material prices. Hélène Bégin and Chantal Routhier warn that the rise in borrowing costs will also have a negative impact there. Many other households will be forced to remain tenants longer than they would like, which will also weigh on rental prices (+4.8% this year and +5.5% in 2023 in Quebec).

This period of cooling in the housing market will last until the Bank of Canada is forced to ease monetary policy again to breathe some life into the economy, which should happen towards the end of the year, Desjardins predicts.

Even then, homeowners won’t have lost all of the ground they gained during the pandemic. The average house price in Quebec by the end of 2023 should still be about 20% higher than in February 2020.

To see in the video

Leave a Comment