Home sales expected to fall by a quarter in 2022, TD says

A new report from TD says home sales in Canada could fall by nearly a quarter on average this year and remain weak through 2023.

The report, prepared by TD Economics and released on Wednesday, says the bank has « significantly » lowered its forecast for home sales and prices from March « as monetary policy has tightened more sharply than expected. » .

TD Economics expects rising borrowing costs to “weigh heavily on real estate activity,” the decline from peak to trough, or business cycle highs and lows, between the first quarters of 2022 and 2023 reaching 33%.

Real estate activity should begin to “firm up” beyond that, the report said, but remain weak as interest rates fall.

This will lead to an average annual decline of 23% in home sales in Canada in 2022, before returning to an average decline of 11.9% in 2023.

Average home prices in Canada between the first quarters of 2022 and 2023 are also expected to fall due to weaker demand, with TD Economics predicting a 19% peak-to-trough decline, followed by modest growth.

The report follows a series of interest rate hikes by the Bank of Canada amid record inflation.

The bank raised its key rate by 50 basis points, or half a percentage point, to 1.5% in June.

The bank previously raised its key rate in March and April, with the next rate announcement scheduled for July 13.

The TD Economics report says it expects the key interest rate to hit 3.25% by the fourth quarter of this year.

Bank of Canada Deputy Governor Paul Beaudry said last month that the key interest rate could exceed the previous target of 3%.

The TD Economics report also breaks down the average annual growth and decline in home sales and prices by province, with British Columbia and Ontario set to see some of the largest declines in 2022 and 2023, which according to TD Economics, reflects « significant deteriorations in affordability during the pandemic. »

Quebec will experience similar modest price growth, with sales in Alberta expected to “retreat significantly from their record highs” but remain closer to pre-pandemic levels through 2023 compared to British Columbia and Ontario.

“Prices should hold up better elsewhere in Canada, with better affordability conditions in the country dampening other markets in the Prairies and Newfoundland and Labrador,” the report said.

« Strong population growth and challenging conditions should provide near-term price support for the rest of the Atlantic, although activity in this region is expected to slow as rates rise. »

A report released last month by Desjardins suggested house prices in Canada could fall 15% to around $675,000 in December 2023, down from their peak of just over $790,000 on average. in February 2022.

Even so, Desjardins says $675,000 is still almost 30% more than in December 2019, when the average home price in Canada was $530,000.

With files from CTV News and The Canadian Press