Canada’s central bank doesn’t see the country’s real estate slump ending soon. Bank of Canada (BoC) shared its expectations for housing in its latest Monetary Policy Report (MPR). The central bank expects falling home sales to find a bottom in the near future. However, it won’t be enough to stop housing from dragging the economy, or prevent prices from falling further. They still see prices falling, especially in regions that saw the largest booms over the past two years.
Bank of Canada Sees Prices Falling Even Further
Higher interest rates have helped reduce prices, and are forecast to keep working. By raising interest rates, servicing costs increase and leverage shrinks. This reduces the qualified pool of buyers, resulting in lower liquidity. In order to be sold, buyers either need to make more money or prices need to fall. The former is a little harder in a realistic time frame than the latter.
Since the BoC isn’t planning any cuts, it’s easy to see why they expect this to continue. “The pullback in housing activity that began in 2022 is expected to continue over the near term,” reads the MPR.
Adding, “the pullback in housing activity that began in 2022 is expected to continue over the near term.”
Canadian Real Estate Sales Forecast To Firm
Canadian home sales are expected to firm, after making a sharp decline. Resales through the MLS in 2022 fell 25.2% compared to the previous year. The volume is now way below the average, and some normalization is reasonable to expect. Home prices have dropped, at least a little, and are likely to attract buyers.
“Growth in new construction and housing resales will likely pick up by the second half of 2023, supported by low inventories and strong demand from immigration,” writes the BoC.
Canada’s Housing Market Is Forecast To Be A Drag On The Economy
Canada’s housing slowdown is forecast to weigh down the economy in the near term. The BoC estimates housing reduced GDP growth by 1.0 point in 2022, worse than the 0.9 points forecast prior. This year, they expect it to trim 0.7 points of growth, once again a downward revision. It’s an improvement but not much when you’re discussing an economy growing 1 point in total.
The BoC finally sees a return to growth next year, but it’s not expected to be anything like 2021. They’re forecasting housing will provide 0.3 points of growth in 2024. In contrast, it provided 1.3 points in 2021—over a quarter of the economy’s total.