Yet another Canadian financial institution thinks real estate is worse than we think. Desjardins made a sharp downward revision to its forecast for Canadian real estate prices. The revision comes after fundamentals eroded faster than expected, already hitting their previous forecast price drop. By the end of next year, they see the average home price shedding about a quarter of its value.
Canadian Real Estate Prices Forecast To Fall Even Faster
Desjardins revised its forecast for Canadian real estate prices much lower. The previous forecast saw the average sale price drop 15% from peak (Feb 2022) to trough (Dec 2023). The market is almost there already though, so they’re making a bigger downward revision — expecting prices to fall between 20% and 25% by next December.
The massive reversal of the market is surprising even experts. “Canada’s housing market is correcting quickly, and faster than we anticipated in our downbeat June forecast,” said the financial institution.
“The reasons for this gloomier outlook are weaker data so far this year and more aggressive monetary policy than previously anticipated, leading to higher mortgage borrowing costs. We now expect the Bank of Canada’s policy interest rate to top out at 3.25% later this year.”
The peak interest rate forecast is in-line with RBC and BMO. It’s also where the Bank of Canada hinted they would hit, claiming they would need above neutral policy for a period of time. It’s probably a solid bet.
BC and Ontario Real Estate To See Sharp Price Drops
British Columbia (BC) and Ontario real estate are both expected to see sharp drops. BC’s average home price is expected to fall 22% from peak to December 2023. Ontario is slightly higher, with a forecast drop of 24% over the same period. Toronto (-22%) is large, but not quite as big as the Rest of Ontario (-27%). Exurbs around Toronto had some of the fastest price growth in the country, if not the world. A pullback wouldn’t be all that surprising or harmful to wealth.
Maritime Real Estate Markets Are Expected To See The Biggest Declines
Those provinces aren’t expected to see the biggest home price contractions. The biggest drops are forecast for New Brunswick (-29%), Nova Scotia (-27%), and PEI (-25%). All of these regions also saw a large increase in home prices over the past two years, with the decline unlikely to reverse all gains in nominal terms. However, adjusting for monster inflation these days, it might be a different story.
Not All Provinces Will See Sharp Price Declines
Provinces that didn’t see a home price boom aren’t expected to fall as much. Saskatchewan (-4%) and Alberta (-9%) aren’t even forecast for a technical correction. Manitoba (-14%) is forecast to see a substantial drop, but it looks tiny compared to the other provinces.
Canada’s real estate market is correcting much faster and sharper than anyone expected. Desjardins is the latest institution to make a substantial downward revision, but far from the only one. Earlier this month RBC made a similar call, also surprised by the pace of price declines. BMO also made a downward revision recently, and now sees a sharp home price decline as well.