Economists predict a price correction in Canada: Capital Economics by 10%, BSIF by 10% to 20%, Desjardins by 15%, CIBC by 15% to 20%, BMO Capital Markets by 20% and Oxford Economics by 24%.
It is also expected that each local market will have different levels of decline. For example, price declines in Montreal are expected to be higher than those in Quebec City.
The pulse of the market
Since the beginning of the year, there has been a steady increase in active listings and a steady decrease in sales under Centris.
"Market conditions remain, in general, extremely tight and the proportion of properties sold as a result of the overbidding process does not yet show signs of weakening, probably because a significant proportion of buyers are still shopping with mortgage rates that have been guaranteed by their financial institution. As long as the level of overbidding remains high, we cannot expect prices to fall," says Charles Brant, director of the APCIQ's market analysis department.
"It is inevitable that the slowdown in price increases will be felt more and more in the coming months, given the change in market dynamics and the greater exposure of new buyers to the increase in fixed, and especially variable, interest rates, which will reduce the pool of buyers who will be able to qualify for a mortgage loan," continues the director.
The correction in Quebec should not be severe, unless there is a recession
"It is very unlikely that sophisticated models will be able to accurately predict how the market will behave over the next 24 months, in the same way that they were unable to predict the price surge during the pandemic," says Charles Brant.
Indeed, no one has a crystal ball. We are already seeing significant price declines in Toronto. I expect a more moderate level of price declines in Montreal. I wouldn't be surprised if the correction is between 5% and 10%.
"The situation is currently unprecedented in that overbidding has never reached the levels we are currently seeing in the market. Moreover, the market is structurally protected from a large and lasting reversal, given the significant imbalance between supply and demand, and an undersized housing start-up activity," adds Charles Brant.
"A sharp drop in bidding levels could result in significant price corrections in the markets that have been most exposed to it, and by definition overvalued. This will likely be a relatively short-lived episode, but will be more or less accentuated in different regions of Quebec. This scenario assumes that there is no economic recession. If there is, which we do not expect, the price correction would be severe.
Impact for buyers and sellers
As a buyer, you can be more patient, knowing that unbridled price increases are not expected. You may buy for less, but your mortgage payments will be higher.
If there's a price drop, and you're looking to sell and buy afterwards, you'll sell for less, but you'll buy for less. So the net impact for you will be minor. On the other hand, if you are not planning to buy later, I would advise you to put your building up for sale quickly.
Impact for owners who are not looking to sell
For landlords who bought before the pandemic, any drop in price would only cancel out some of the increases of the past few years. This is not dramatic.
First-time buyers who have bought recently are the most at risk, especially if they bought at a premium. The stress test has forced these buyers to provide a financial cushion in case of a rate hike. As for the risk of losing one's job, even if the economy slows down, we are in a labour shortage situation. I don't foresee a sharp rise in the unemployment rate.
It is not impossible that prices will start to rise again as early as 2024. In these times of rising inflation and interest rates, I would advise homeowners who do not wish to sell to re-evaluate their budgets and stop reading scare stories.
Source : Article by Jean Sasseville on the lesaffaires.com on the 15th june of 2022
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