Canadian home prices have further to fall, economists say

Economists unanimous downturn isn’t over yet, according to one recent survey

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Canadian home prices have further to fall this winter as interest rates continue to take a bite out of the country’s once-booming real estate market, economists say.

In a recent survey of 17 economists, 100 per cent said home prices will keep falling for the remainder of this year and into the first quarter of 2023, according to personal finance site Finder’s latest outlook.

Economists are divided on how bad the damage will be. One third, or 33 per cent, of those surveyed expect prices to slide between 7.5 per cent and 9.99 per cent by the end of the year. A quarter think Canada could see a 2.5 per cent to 4.99 per cent decline. And on the high end of the spectrum, eight per cent expect prices to crater 15 to 19.99 per cent.

The Bank of Canada’s aggressive interest rate hikes have helped cool the housing market. Rising mortgage rates are giving buyers pause, and as a result, home prices are falling. In September, the average home price fell 6.6 per cent from the same time last year, data from the Canadian Real Estate Association showed.  For comparison, in February the average home price peaked at $816,720. By September, it had come back down to $640,479.

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It’s not just buyers waiting on the sidelines helping to cool prices, however. Moshe Lander, an economics professor at Concordia University and a member of Finder’s panel, said sellers are contributing to the downturn.

“Higher interest rates have clearly impacted the demand side of the market and (this) is starting to show on the supply-side,” he said in the report.

Elevated rates are pushing mortgage payments higher, and some homeowners are finding themselves unable to cope. That could prompt some to sell property as quickly as possible, pushing prices down further in the process. Combine that with lower demand from buyers and we could see prices dive between five and 7.9 per cent in the next two months, Lander said.

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Meanwhile, interest rates are expected to continue rising. Eighty-eight per cent of the economists surveyed by Finder expect the Bank of Canada to hike again in December.

Finder’s panel of economists aren’t the only ones calling for a continued slowdown in real estate prices. Royal Bank of Canada economists predict they will crater 15 per cent by the spring from their peak, with sharper declines of 16 per cent in Ontario and British Columbia.

Bank of Montreal senior economist Robert Kavcic also sees further declines.

“This downward price discovery is probably going to persist well into next year, and anyone holding out for better market conditions is going to need a stroke of luck,” he wrote in an Oct. 14 note.

David Rosenberg and Alena Neiland of Rosenberg Research & Associates Inc. paint an even more dire picture.

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“Canada’s housing bubble has burst,” the economists wrote in a recent column in the Financial Post.

“With further policy tightening in the pipeline … this housing drawdown is just getting started,” they added.

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U.S. job openings unexpectedly rebounded in September amid low unemployment, likely fuelling further wage gains and adding pressure on the Federal Reserve to extend its aggressive campaign to curb inflation.

The number of available positions increased to 10.7 million in September from a revised 10.3 million a month earlier, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Tuesday. The median estimate in a Bloomberg survey of economists called for a drop to about 9.8 million.

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The surprise pickup in vacancies highlights unrelenting demand for workers despite mounting economic headwinds. The persistent imbalance between labour supply and demand continues to underpin robust wage growth, adding to widespread price pressures and reinforcing expectations for yet another large rate hike on Wednesday.

— Bloomberg

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  • FOMC interest rate announcement, followed by press briefing by U.S. Federal Reserve chair Jerome Powell
  • NDP Leader Jagmeet Singh will speak on his priorities for helping Canadians with costs
  • The standing committee on transport, infrastructure and communities meets about anticipated labour shortages in the Canadian transportation sector
  • The standing committee on agriculture and agri-food meet about global food insecurity
  • The standing committee on finance meets regarding Bill C-241, An Act to amend the Income Tax Act (deduction of travel expenses for tradespersons)
  • The standing committee on human resources, skills and social development and the status of persons with disabilities meets regarding Bill C-22, An Act to reduce poverty and to support the financial security of persons with disabilities by establishing the Canada disability benefit and making a consequential amendment to the Income Tax Act
  • The Senate committee on national finance will hear from Jean-Yves Duclos, minister of health; Ahmed Hussen, minister of housing, diversity and inclusion; and Diane Lebouthillier, minister of national revenue, on Bill C-31, An Act respecting cost of living relief measures related to dental care and rental housing
  • The 2022 Canadian Innovation Exchange summit continues in Toronto
  • The Ontario Public Service Employees Union will be holding a news conference to discuss the hospital staffing crisis and the solutions that exist within Ontario’s public health care system that are being overlooked by the Ford government
  • Real Estate Board of Greater Vancouver releases October home sales figures
  • Today’s data: U.S. ADP national employment report
  • Earnings: Suncor Energy Inc., Qualcomm Inc., CVS Health Corp., Nutrient Inc., Census Energy Inc., Sun Life Financial Inc., eBay Inc., Great-West Lifeco Inc., Marathon Oil Corp., Tourmaline Oil Corp., Brookfield Infrastructure Partners LP, CBS Corp., MGM Resorts International, Etsy Inc., Robinhood, Bausch + Lomb Corp., Mitsubishi Motors Corp., Spin Master Corp., Canada Goose Holdings Inc., Athabasca Oil Corp., Canaccord Genuity Group Inc., Calfrac Well Services Ltd., Lucara Diamond Corp.

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Whole life insurance can be a controversial product, but its two main features, tax-sheltered growth and a tax-free death benefit, make it worth considering when you’re doing estate planning, or when looking for another tax shelter after maximizing your registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). In the latest FP Answers column, a certified financial planner addresses a question from a reader, who asks if a whole life insurance policy is a good investment vehicle.

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Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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