RBC can see the bottom from here
March 16, 2023
The Canadian housing market has not reached bottom yet, but the Royal Bank of Canada (RBC) claims it can see the bottom from here.
“We think activity will hit bottom sometime this spring. Prices will level out a few months later—provided the Bank of Canada is done raising interest rates. All told, our forecast calls for a 15 per cent peak-to-trough decline in the national Home Price Index. Roughly half of that is still to come,” RBC stated in a recent Special Report on Housing.
RBC sees the recovery phase starting slowly later in 2023 as affordability issues and a weaker economy continue to hold back buyers. RBC sees inflation taming and the Bank of Canada lowering interest rates in 2024 from the current prime of 4.5 per cent.
Booming immigration will fuel housing demand, raising the odds of deep supply shortages in the future if home building fails to pick up materially, RBC warns.
Sales activity is so slow in most markets “there is little downsize left,” noted RBC economist Robert Hogue.
“Nationwide resales are the quietest they’ve been since the 2008-2009 global financial crisis (excluding the lockdown period in the spring of 2020),” Hogue said. He added, “We believe a bottom will form in the coming months.” “The dramatic swing in the market since March 2022 is a cyclical event marking the transition out of highly unusual circumstances—a global pandemic and exceptionally low interest rates. Structurally the market is sound. Inventories are still historically low and there are no signs of overbuilding virtually anywhere in the country. Canada’s population has grown the most in generations over the past year, and booming immigration will keep that going over the medium term. We believe solid fundamentals will come once the market has adjusted to higher interest rates,” he concluded.