According to scenarios presented on Thursday by Canada’s independent fiscal watchdog, home prices could decline by as much as 23% from peak levels this year alone as rising interest rates make existing price tags increasingly untenable for prospective purchasers.
The difference between the price of homes and what families can afford to pay for them has increased significantly over the past eight months, according to a research by Parliamentary Budget Officer Yves Giroux, even though Canada’s average resale price has dropped 7% from its peak in February.
The research stated that the reason for the increase was due to increasing mortgage rates, which reduced household borrowing capacity. Home price decreases can continue if debt service ratios are high.
Commercial mortgage rates have increased significantly as a result of the Bank of Canada raising its policy rate by 300 basis points in only six months and announcing additional increases. The current prime rate is 5. 45 percent as opposed to 2. In earlier this year, 45%.
According to the research, Canada’s affordability gap—the difference between a home’s cost and what a household can afford to pay for it—has grown to 67% from 45% in December 2021.
In contrast, the difference was 20% in late 2019 and only 2% in 2015.
Even after the current decline, home values are still up more than 50% since the outbreak. 6% higher than levels in January 2015, citing Canadian realtors’ data.
The PBO scenarios suggested that cities that experienced the biggest increases, such Halifax, Nova Scotia and Hamilton, Ontario, could experience the steepest reductions, with Halifax prices falling by as much as 30% and Hamilton losing as much as 25%.
Although the PBO made it clear that these scenarios were not projections, they predict price drops in each of the 11 major markets.
In an effort to address a persistent affordability dilemma, Canada’s ruling Liberal government has offered billions to quadruple the pace of homebuilding over the next ten years and assist more individuals in purchasing their first home. .
As the affordability gap grows, Canadian home prices could decrease much more: PBO
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