Friday, July 15, 2022

At a glance (1 minute read)

  • CMHC revised their housing forecast due to rising interest rates and inflation.
  • The report predicts sales will decline as much as 34%, and prices will decline by 5%.

Canada Mortgage and Housing Corporation (CMHC) has revised its housing forecast due to the highest level of inflation in nearly four decades which caused the Bank of Canada to raise interest rates.

In the revised economic and housing forecast, CMHC chief economist, Bob Dugan predicts that by mid-2023:

  • national housing sales will decline by as much as 34% compared to their level in early 2022; and
  • the average home price in Canada will decline by 5%.

Rising interest rates cause economic growth to slow, leading to higher unemployment and less wage growth, according to Dugan. Rising rates also increase:

  • mortgage rates;
  • construction costs as a result of escalating financing costs;
  • material costs; and
  • labour shortages.

Dugan expects mortgage rates will stabilize in 2024 supported by rising household income and higher immigration. Home prices are expected to return to positive but moderate growth.

More rate hikes are expected to follow later this year. In the meantime, potential home owners will stay renting longer and rental vacancy rates will be even lower.

Five-Year Conventional Mortgage Rate, Canada (2015-2025)

Source: Statistics Canada, CMHC Forecasts

MLS® Average House Prices, Canada (2015-2025)

Source: Canadian Real Estate Association, CMHC Forecasts

Read CMHC’s The road ahead for the economy and housing.