The housing market is in a sharp correction across Canada.
This is obviously very bad news for people who have recently bought a property at an artificially inflated price. The same goes for owners looking to sell their homes after missing the peak.
But prospective buyers for their part will obviously appreciate the strong correction that is underway. However, they face a major problem, which is financing their eventual purchase at fairly high mortgage rates.
According to the Teranet National Bank house price index, the cumulative price decline since the peak last May reached 10% in December. It is “the sharpest decline in the index on record,” says economist Daren King of Financière Banque Nationale.
“The price drop we are witnessing has even surpassed the 9.2% drop in value during the 2008 financial crisis,” he adds.
The housing market correction is likely to continue in the coming months. House prices are likely to fall further due to the Bank of Canada’s sharp hike in interest rates, which sent mortgage rates soaring.
Assuming the Bank of Canada stops raising interest rates soon, the correction could end at 15% nationwide.
Worst in Quebec
Analyzing statistics compiled by the Professional Association of Quebec Real Estate Brokers (APCIQ), it is clear that the correction appears to be even more severe in Quebec.
As evidence, here are the declines recorded between the recent peak last spring and last December.
For the province as a whole, the decline in median price is 13.5% for single-family homes, down from $451,000 to $390,000, a decrease of $61,000.
In the condominium market, the decline is 10.2%, while the median price fell from $384,000 to $345,000, a decrease of $39,000.
The biggest correction was seen in the Plex market (two to five units). The median price fell by $125,000 (-22%), or from $565,000 in May to $440,000 in December.
To find out the magnitude of the real estate correction that has hit your region, I invite you to consult the table below.
What to do?
The probability that the real estate correction will deepen in the next few quarters is very high, especially given the looming entry into an imminent recession, the price surge that has occurred as a result of runaway inflation, high mortgage rates and other consumer loans.
The game of supply and demand favors future buyers at the expense of potential sellers. This puts potential downward pressure on current prices.
However, as the end of the Bank of Canada rate hike nears, it suggests that mortgage rates are about to peak. And according to several economists, including those of Desjardins, mortgage rates should start falling from next year.
This possible drop in mortgage rates should stimulate, or at least stabilize, the housing market and put future buyers on the alert.
At the beginning of 2022, according to the APCIQ Barometer, the one-year mortgage rate was 2.79% and that of the five-year term was 4.79%.
Less than a year later, the one-year rate climbed to 6.9% and the five-year rate to 6.37%, up 3.3 percentage points and 1.58 percentage points, respectively.
Therefore, today it costs much more to finance the purchase of a property or to refinance the existing one.
Desjardin’s economists forecast that one-year mortgage tenors will peak this year at 6.4% and five-year tenors at 6.75%. Mortgage rates are then expected to start falling, falling to 4.35% for the one-year term and 5.7% for the five-year term in 2027.
PROPERTY CORRECTION BY REGION
More precisely, here is the median price published last December and the concrete decrease in said price compared to the recent peak according to data from the different regions of Quebec. The data is based on statistics published by APCIQ and the Centris system.
- Single family home: $653,200 (-$131,800 / -16.8%)
- Condo: $435,000 (-$30,000 / -6.5%)
- Single Family Home: $486,000 (-$115,000 / -19.1%)
- Condo: $356,000 (-$52,000 / -12.7%)
North Shore of Montreal
- Single Family Home: $440,000 (-$85,500 / -16.3%)
- Condo: $322,000 (-$31,800 / -9.0%)
South Shore of Montreal
- Single Family Home: $517,000 (-$62,000 / -10.3%)
- Condo: $335,000 (-$45,000 / -11.9%)
- Single Family Home: $328,000 (-$22,000 / -6.3%)
- Condo: $222,500 (-$17,450 / -7.3%)
- Single Family Home: $415,000 (-$60,000 / -12.6%)
- Condo: $285,000 (-$31,000 / -9.2%)
- Single Family Home: $237,324 (-$11,176 / -4.5%)
- Condo: $195,000 (-$4,450 / -2.3%)
- Single Family Home: $350,000 (-$19,000 / -5.1%)
- Condo: $265,000 (-$20,000 / -7.0%)
Trois Rivieres region
- Single Family Home: $284,500 (-$20,500 / -6.7%)
- Condo: $232,500 ($0 / 0%)