Home prices have been declining for roughly the last 10 months in Canada, but they’ve only fallen half of what to expect, says a new report from Oxford Economics..The worst-case scenario is prices being cut in half, falling back to 2014 levels..“Canadian real estate prices are falling and expected to continue doing so in the near-term,” reads the report. “(Our) baseline scenario forecast sees home prices falling 30% in total, from peak-to-trough. That leaves us just under halfway to the target, with another 17% in value to go.”.Home prices won’t fall across the country at the same rate. The largest declines will be in the markets that saw the largest prices gains, including Hamilton (-34%) and Kitchener-Cambridge-Waterloo (-33.6%),” says Oxford..Markets that had more modest increases such as Regina (-10.7%), and Calgary (-11.8%) will see more tempered reductions. .Oxford’s numbers cover home prices across markets, but a deeper dive is required to get an accurate view of where prices are and where they might go..Paul Betts, president of GAP a marketing and research firm in the home building industry, says generalizing housing statistics is akin to saying the average speed of cars is 30 km/h, not accounting for the fact some cars are new Corvettes and some cars are 2001 Pontiacs. No offence to Pontiacs..“More information is required,” says Betts. “What baseline or definition do they use when they say ‘prices?’ Average? Median? Single? Multi? ‘Prices’ drop when higher priced homes and markets soften. That in no way means that a given market price band in a given geographical market will experience price drops. In fact, when one particular market (high end) softens, there is often a counter balance where the lower-mid end actually increases because people temper their wish list and still buy, but in a lower price bracket. This can result in shortages of product.”.This is borne out in the city of Calgary. For years, single-family homes were the top sellers, at the top prices, while condominium apartments were at the low end of sales and prices. Single-family homes are still the top sellers, but apartments have taken over the No. 2 spot. In Calgary, and it's an anomaly compared to other markets, prices for single-family homes and apartment homes were higher in January 2023 than January 2022, according to the Calgary Real Estate Board..Higher interest rates do not necessarily mean people must sell their homes, says Betts..“In my opinion, this will go a long way to mitigate the interest rate impact especially for those who have long term, low-rate mortgages with two, three or more years left on their rate,” he says..Another ‘parachute’ that will offer a soft landing is the stress test introduced in 2016. The test requires mortgage applicants to qualify a mortgage interest rate of 5.25% or 2% above the contract rate, whichever is higher. It was controversial at the time, with the new and resale housing industries fearing it would severely cut into sales, which didn’t happen. The stress test was designed as a hedge against rising interest rates to ensure mortgage holders were in a position to afford their mortgage payments.. “I actually supported the stress test implementation years ago, as we all knew rates would not stay low forever,” says Betts, adding a warning about the biggest issue facing the housing market: a lack of supply..“Equity in homes may drop in the markets like Toronto, Vancouver, Vancouver Island, Kelowna etcetera, but I maintain my stance from earlier that there will be a significant enough supply shortage in the summer/fall that a lot of what Oxford Economics says will not happen.”.“Builders, get building!”
Home prices have been declining for roughly the last 10 months in Canada, but they’ve only fallen half of what to expect, says a new report from Oxford Economics..The worst-case scenario is prices being cut in half, falling back to 2014 levels..“Canadian real estate prices are falling and expected to continue doing so in the near-term,” reads the report. “(Our) baseline scenario forecast sees home prices falling 30% in total, from peak-to-trough. That leaves us just under halfway to the target, with another 17% in value to go.”.Home prices won’t fall across the country at the same rate. The largest declines will be in the markets that saw the largest prices gains, including Hamilton (-34%) and Kitchener-Cambridge-Waterloo (-33.6%),” says Oxford..Markets that had more modest increases such as Regina (-10.7%), and Calgary (-11.8%) will see more tempered reductions. .Oxford’s numbers cover home prices across markets, but a deeper dive is required to get an accurate view of where prices are and where they might go..Paul Betts, president of GAP a marketing and research firm in the home building industry, says generalizing housing statistics is akin to saying the average speed of cars is 30 km/h, not accounting for the fact some cars are new Corvettes and some cars are 2001 Pontiacs. No offence to Pontiacs..“More information is required,” says Betts. “What baseline or definition do they use when they say ‘prices?’ Average? Median? Single? Multi? ‘Prices’ drop when higher priced homes and markets soften. That in no way means that a given market price band in a given geographical market will experience price drops. In fact, when one particular market (high end) softens, there is often a counter balance where the lower-mid end actually increases because people temper their wish list and still buy, but in a lower price bracket. This can result in shortages of product.”.This is borne out in the city of Calgary. For years, single-family homes were the top sellers, at the top prices, while condominium apartments were at the low end of sales and prices. Single-family homes are still the top sellers, but apartments have taken over the No. 2 spot. In Calgary, and it's an anomaly compared to other markets, prices for single-family homes and apartment homes were higher in January 2023 than January 2022, according to the Calgary Real Estate Board..Higher interest rates do not necessarily mean people must sell their homes, says Betts..“In my opinion, this will go a long way to mitigate the interest rate impact especially for those who have long term, low-rate mortgages with two, three or more years left on their rate,” he says..Another ‘parachute’ that will offer a soft landing is the stress test introduced in 2016. The test requires mortgage applicants to qualify a mortgage interest rate of 5.25% or 2% above the contract rate, whichever is higher. It was controversial at the time, with the new and resale housing industries fearing it would severely cut into sales, which didn’t happen. The stress test was designed as a hedge against rising interest rates to ensure mortgage holders were in a position to afford their mortgage payments.. “I actually supported the stress test implementation years ago, as we all knew rates would not stay low forever,” says Betts, adding a warning about the biggest issue facing the housing market: a lack of supply..“Equity in homes may drop in the markets like Toronto, Vancouver, Vancouver Island, Kelowna etcetera, but I maintain my stance from earlier that there will be a significant enough supply shortage in the summer/fall that a lot of what Oxford Economics says will not happen.”.“Builders, get building!”
