First National Financial LP

Residential mortgage quarterly review Q1 2022

  • First National Financial LP

Providing housing market predictions has become tricky over the past couple of years.  The pandemic created economic turmoil that still hasn’t calmed down: rock-bottom interest rates; unprecedented government supports; record-breaking home sales and price increases and now, generationally high rates of inflation.

In light of high inflation there has been a corresponding focus on home prices in Canada.

Realtors see a Moderating Market

The Canadian Real Estate Association is forecasting some moderation in the housing market through this year and especially in 2023.  In its latest quarterly report CREA predicts a 14.3% increase in the National Average Price of a home in 2022, putting it at $768,000.  It is projecting a very modest 3.2% increase, to $811,000, next year.  However, CREA’s numbers for March already put the average price at $796,000, up more than 11% from a year earlier.

The real estate association expects to see an 8.0% decline in the number of properties that will change hands in 2022.  But the forecast 621,800 transactions would still be the second busiest year on record, by a wide margin.  The Realtors are looking at a further 3% decline in 2023 as the slow move back toward the long-term trend continues.

Focusing on Inflation

High inflation and the Bank of Canada’s strong response to it have triggered a number of other forecasts that see home prices actually falling, at least in the near term.

The central bank has increased its trend-setting Policy Rate twice in its last two settings.  It now stands at 1.0%, up from 0.25% at the beginning of the year.  The last increase was 50 basis-points, which is the biggest jump in more than 20 years.  The Bank appears to be trying to demonstrate that is serious when it says it will move aggressively against inflation.  There are some market watchers who expect to see further 50bps hikes with the BoC settling at a Policy Rate of 2.50% before the increases stop.

Rates Rising

Policy Rate increases, in turn, drive up rates for variable rate mortgages and home equity lines of credit – a process that is already underway.  In addition, the Bank has ended its government-bond buying program (quantitative easing) which has seen bond yields rise, taking fixed-rate mortgages along with them.

Given that these rising (though still traditionally low) rates are being applied against much bigger mortgage amounts, forecasters at a number of economic research firms, and even some of the big banks, are pointing to the possibility of price declines of 24% to as much as 30%.

And a final note 

Canada Mortgage and Housing Corporation has discontinued its quarterly Housing Market Assessments.  The HMA looked at four key factors – overheating, price acceleration, overvaluation and excess inventories – in an effort to identify imbalances that could increase the risks for a housing market downturn.

“We’re refocusing our resources to get a better understanding of housing supply and affordability issues across Canada,” the agency said in a release.