Bank downgrades housing forecast

August 1, 2022



Canada’s largest bank has downgraded its forecast for Canada's housing market.
Vancouver, Toronto and Victoria are the cities likely to suffer the most, according to Royal Bank of Canada (RBC) assistant chief economist Robert Hogue in a report released July 21.
RBC now sees home resales across Canada falling nearly 23 per cent in 2022, and 15 per cent in 2023. These declines align with the national benchmark home price falling 12 per cent from its peak by the second quarter of 2023. 
"We expect local outcomes to vary widely with the priciest, more interest-sensitive areas facing larger declines, and relatively affordable markets showing greater resilience," Hogue noted.
His revised outlook follows the Bank of Canada increasing its benchmark interest rate by a full percentage point to 2.5 per cent on July 13. This increase prompted banks to raise prime rates on mortgages. RBC, for example, raised its prime rate to 4.7 per cent, from 3.7 per cent. 
Hogue stated raised rates “will no doubt speed up the market's cooling phase in the near term.”
He expects the Bank of Canada to hike its benchmark overnight rate another 75 basis points to 3.25 per cent by October 2022.
RBC economists expect a cumulative 42 per cent drop in home resales between early 2022 and early 2023—exceeding peak-to-trough declines in the previous four national market downturns.