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Home Price Declines Are Likely

by | Mar 31, 2022

Home Price Declines Are Likely

The past two years have been very unpredictable as the COVID-19 pandemic has ravaged the globe. The pandemic has brought many differences with the economy in Canada, and one of them is the hot housing market that started in early 2020 and has not let up.

With the housing market, many families have struggled to buy homes because the competition has been very fierce, with some homes going over 30-40% of the asking price.

According to an article by Canadian Mortgage Trends, New Forecasts Suggest Home Prices Declines Are Likely. A growing number of economic forecasts see Canadian housing prices falling in the near term, with some suggesting declines of around 25% or more. Meanwhile, the latest forecast from Oxford Economic has home prices falling 24% by mid-2024.

A big reason for this breaking point is due to the above borrowing capacity of median-income households. In late 2021, prices were 19% above the borrowing capacity of median-income households, and by the middle of this year it could be as high as 38%. Due to the weight of the housing market’s own success, it is likely the housing market will reach a breaking point and crash. Another reason for the potential of a housing market crash is higher borrowing rates, with the Bank of Canada’s policy rate expected to reach at least 2% by 2024. Oxford also expects average 5-year fixed rates will reach 4.25% by the end of this year and 5% towards the end of the decade.

We understand that this news comes with very mixed emotions. For some, a lowering in housing prices allows for a sigh of relief knowing that you may be able to comfortably enter the housing market in the near future. For others, you may be worried that the property you recently purchased in the last few years will start to depreciate and you will lose money on your investment. It is important to understand that these are just forecasts, and although we do anticipate a drop in the near future, the exact amount of the drop is unknown. It is unlikely that the drop will be any more severe than what Oxford is expecting and even if it does it is all relative. If your housing prices drop 12%, you must understand that other housing prices in your area are also likely to drop, making the purchase of your next property still within your purchasing power. 

Oxford notes that even if the anticipated 24% drop was to occur, the real estate market would still be 15% higher than pre-pandemic levels. That is exciting news because it is always great to see growth in the market, and to see growth maintain even after the housing market cools off should be positive news for real estate investors. 

In the meantime, the BC government recently introduced legislation that will allow for a cooling off period following the purchase of a home. The government announced this in an effort to protect buyers in the province’s red-hot real estate market. The legislative announcements, when passed, will give people buying a home more time to consider their offers, ensure financing and obtain a home inspection. This is very exciting news because it decreases the risks that were associated with a lot of these quick turnaround housing sales that left people unprepared and potentially buying a home that had more issues than originally expected. 

We will continue to update you when this piece of legislation gets passed.

We understand that the housing market is scary and we understand that anxiety can be increased with the present incline and the future decline of the market. We are always here to answer any questions you may have at any point. 

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