The case for slower price growth
The Bank of Canada is clearly signaling its intention to raise interest rates as early as the middle of next year. That has many market watchers forecasting a surge in home purchases and prices in the coming months. The analysts expect to see a scramble of home buyers trying to lockdown their deals before the rates rise.
However, in a recent report, Moody’s Analytics lays out the case for price stabilization and slower price growth, based mainly on the premise that supply and demand will fall back into line.
The report cites Canadian Real Estate Association data that shows existing-home sales fell for the fifth straight month in August. At 587,000 annualized units, sales are down 27.5% from the peak reached in March. CREA has also forecast a slowdown in price growth. The association expects prices to rise by 5.6% in 2022, a significant pullback from the nearly 20% increase projected for this year.
Moody’s points to declining housing starts and a contraction in the value of building permits being issued as further signs the market is cooling. Although both of those measures remain high compared to pre-pandemic levels. As well, the pandemic caused a slowdown in home completions which contributed to supply shortages. As those homes are finished and hit the market, over the next year, the shortages should start to ease. Moody’s also believes the pandemic-inspired surge in demand has largely played out. Further, it expects the Bank of Canada’s pending interest rate increases to drag home price appreciation to a near standstill through 2022 and 2023.
The report says price growth should be re-invigorated by the end of 2023 as population growth, immigration and “a nearly healed labour market re-energize wage and salary growth.”