Latest interest rate hike will soften housing market activity, but home prices are not likely to go down

• By Kelly Ann Scott
• Posted Monday, Jul 31, 2023 12:30 pm

Latest interest rate hike will soften housing market activity, but home prices are not likely to go down

Canadians continue to grapple with the increased cost of living, and the Bank of Canada’s latest hike to interest rates this week will add more pressure to variable rate mortgage holders, as well as those looking to qualify for lending. While buyers who have secured a rate hold are anxious to make a purchase before it expires, some sellers have hit the pause button on listing their homes until economic conditions stabilize, further contributing to a lack of available inventory. Additional demand pressures will ensure that home prices will remain stable through the expected decline in sales activity in the coming months.

“The Canadian real estate market has been in a steady state of recovery since the start of the year. While these additional interest rate hikes, and those potentially to come, will likely put a damper on activity and sales volumes, demand for housing remains very strong,” said Phil Soper, president and CEO of Royal LePage.” We expect the rate of appreciation to moderate through the second half of 2023, causing home prices to level off or increase marginally.”

Royal LePage is forecasting that the aggregate price of a home in Canada will increase 8.5% in the fourth quarter of 2023, compared to the same quarter last year. The previous forecast has been revised upward to reflect strong activity and price appreciation in the first half of the year.

According to the Royal LePage House Price Survey released today, the aggregate price of a home in Canada decreased modestly by 0.7% year-over-year to $809,200 in the second quarter of 2023, indicating that nationally, the real estate market is close to the point where it will have recovered fully from 2022’s post-pandemic market correction. On a quarter-over-quarter basis, the aggregate price of a home in Canada rose 4.0% in Q2. This was the second consecutive quarter to show positive growth following a rapid decline in prices over the last year as a result of the Bank of Canada’s aggressive interest rate hike campaign, which began in March of 2022...[READ MORE]