Single family homes are seen against the skyline of Vancouver, British Columbia, Canada September 30, 2020.
Single family homes are seen against the skyline of Vancouver, British Columbia, Canada September 30, 2020. Reuters / Jennifer Gauthier

Canadian house price inflation will slow to 10% this year as the Bank of Canada raises interest rates aggressively, a Reuters poll of property market experts found.

Yet although prices will fall modestly in 2023, it won't be enough to improve affordability due to the rising cost of mortgages, the poll found.

Ultra-low borrowing costs and pandemic-related stimulus measures contributed to a more than 50% rise in average home prices over the last two years, forcing the Canadian government to lay out a budget geared at making housing more affordable.

But home prices fell more than 6% in April, suggesting the market is already cooling, even as BoC Governor Tiff Macklem said more rate increases would be needed to curb runaway inflation, pledging to do so "forcefully" if needed. [CA/POLL]

"In the past two months we have started to see downward pressure on home prices and this trend will likely continue as interest rates continue to trend up," said John Pasalis, president of brokerage and research firm Realosophy Realty.

"Another 100 bps increase in the BoC policy rate and another 100 bps increase in 5-year posted (mortgage) rates will have a material impact on the housing market," Pasalis added.


Average house prices were expected to rise 10.0% this year, up from a 9.2% rise predicted in a March poll. While the increase was expected to weaken through the remainder of this year, stronger-than-expected gains so far have resulted in a higher annual average forecast median.

Home prices were predicted to fall 2.2% next year and rise 0.5% in 2024, according to the May 10-30 poll of 13 market analysts. That compared with rises of 1.5% and 2.0%, respectively, in the March poll.

Asked about affordability for first-time homebuyers over the next two years, nine of 13 respondents said it would worsen, including three who said it would worsen significantly. The remaining four said it would improve.

Robert Hogue, senior economist at RBC, said: "Higher rates will pose huge challenges for buyers.

"We don't expect the 2022 federal budget to prevent this. New federal initiatives either won't fully bring benefits for some time or will offer only marginal support for homebuyers for example, doubling the first-time homebuyers' tax credit amount."

More than 85% of analysts, 12 of 14, who responded to another question said affordability in the home rental market over the next two years would worsen or significantly worsen. Only two said it would improve.

Asked how high would interest rates need to be to cause a significant slowdown in housing market activity, the median was 3.25%, with predictions in a 2.0%-6.0% range.

The BoC is expected to raise rates by 50 basis points on Wednesday to 1.50%. Rates were expected to reach 2.50% by end-2022, according to another Reuters poll.

(For other stories from the Reuters quarterly housing market polls:)