One of Canada’s big banks is calling for the country’s cooling housing market to hit a low point in the spring before fully adjusting to rising interest rates.
RBC assistant chief economist Robert Hogue said in a report Friday that home buyers are “on the defensive” as the Bank of Canada continues to raise interest rates. The central bank delivered a 75-basis-point hike last week and signalled rates will have to rise further in the months ahead as core inflation remains hot.
But the higher cost of borrowing has sent a chilling effect through the housing market, with the Canadian Real Estate Association (CREA) reporting Thursday that home sales in August were down one per cent compared with July and 24.7 per cent lower than the same month last year.
CREA also trimmed its forecast for both housing activity and price growth. It now expects home sales to decline 20 per cent by the end of 2022 relative to last year’s peak.
Hogue’s forecast is even more dire, however, expecting a 23 per cent decline in year-over-year sales by the end of this year and a further 14 per cent drop in 2023.
RBC is now calling for the Bank of Canada’s benchmark interest rate to hit four per cent by year’s end, up from an earlier call of 3.5 per cent.
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