Thursday , 8 December 2022

Canadian Home Prices To Decline 30% In Coming Hard Landing

…Oxford Economics has warned…that the coming hard landing for Canada’s economy will lower home prices by around 30% from the peak which is being brought about in reaction…to high debt loads, elevated inflation, and rising rates. 

A hard landing is a recession that happens after a rate adjustment when trying to calm inflation…[while] a soft landing is where rates rise but the economy only slows with no recession. Oxford Econ, however, sees a moderate recession within the next six-months….[with] a contraction of 1.8% peak-to-trough, from Q4 2022 to Q2 2023. A recession of this size would be considered moderate, so we’re past the point of a soft landing or mild rough patch.

[Unfortunately,] Canadian households are too highly indebted to mount a flexible response. Due to supersized debt loads, small increases in interest will add up to a big diversion of income. The firm is forecasting 8.2% of disposable income will be used to carry mortgage payments in Q2 2023, up from 6.5% this year. It’s higher than the 2018-2019 debt cycle, consuming the biggest share of income since 2009…The sharply higher interest rates will cause debt service costs to jump and the significant housing correction already underway to deepen. Additionally, reduced real income due to stubbornly elevated inflation will further squeeze households and prompt cuts to discretionary spending and a period of deleveraging.”

Editor’s Note:

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The firm’s calculations show a typical mortgage will rise by an average of $162 (+11.3%) to $1,590/month in Q2 2023. It’s a sharp increase, but the total is lower than the average rent for a 1-bedroom due to inflation. It’s going to be hard for homeowners to get sympathy.

Canadian real estate prices are forecast to correct by 30% correction…but it will only partially erases the 50% pandemic surge and, in this scenario, the benchmark home price would remain 7% higher than pre-COVID levels with potential losses in housing wealth being contained to recent homebuyers and largely unrealized for longer-term homeowners, says Oxford Econ…continue reading.

The above version of the original article by Daniel Wong (betterdwelling.com) has been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.