A big Canadian real estate brokerage upgraded its price forecast, despite rising rates. Royal LePage now sees home prices rising 15.0% in 2022, an upgrade from the 10.5% previously forecast. Similar gains are seen for Toronto (16.5%), Montreal (12.5%), and Vancouver (15.0%) real estate, as well. It’s a fairly big jump for home prices that set a few media outlets buzzing. However, they missed a tiny detail — prices need to fall to hit that price target.
Canadian Home Prices Forecast To Climb 15%
“While undoubtedly impressive, note that an average price gain of +15% this year would actually require a moderate pullback in prices through the rest of the year. Wait…what?,” wrote BMO Chief Economist Douglas Porter, in a letter to Capital Markets customers this week. They attached the following chart to compare the target with recent monthly numbers.
Source: CREA; BMO.
Canadian Real Estate Rising Just 15% Means Lower Prices
The 15% climb might have come off as enthusiasm, but it’s a bearish call from a very bullish brokerage. “The chart shows that prices in March are already about 20% above last year’s average price (based on the MLS HPI metric) due to the surge in prices late last year and into early 2022,” explained Porter.
“Prices would actually need to retreat from current levels to average ‘just’ a 15% gain this year.”
Higher Interest Rates and More Supply To Ease Housing Crunch
Once again, this is still a fairly bullish call for real estate when other organizations see up to a 30% decline. However, it does appear to recognize easing supply constraints and higher interest rates.
“We suspect this will likely be the case, with interest rates steadily climbing, supplies ramping up, and market sentiment shifting notably,” he said.