According to RBC's latest forecast.
The global housing market has faced a major crisis, with the cost of homes soaring during the pandemic. Now, RBC is predicting that national home prices could drop by more than 12% as of early next year.
"We expect the downturn will deepen in the coming months with both resale activity and home prices reaching lower levels than we previously anticipated," RBC stated.
The Royal Bank of Canada said that home resales could fall by 23% this year and 15% in 2023 — with the "national benchmark price to drop more than 12% from peak to trough by the second quarter of 2023."
Per RBC's report, home resales are expected to fall by another 17% in Canada by early next year, which follows a previous drop of 13% between January 2021 and January 2022.
"Cumulatively, this 42% plummet (from record-high levels) since early 2021 would exceed the peak-to-trough declines of all four previous national downturns (-33% in 1981-1982, -33% in 1989-1990, -38% in 2008-2009 and -20% in 2016-2018)," the report says.
So, what's causing this likely dip in home prices and home resales?
Well, RBC says that with housing market demands weakening "significantly" and affordability being stressed in most parts of the country, prices are bound to drop.
The Bank of Canada's rising interest rates also plays a role. After increasing the interest rate by 1% — bringing it to a 14-year high of 2.5% — RBC predicts that the rate is only expected to go up. "We still expect the overnight rate will reach 3.25% by October," the report states.
This will ultimately close "the last window of super cheap borrowing costs available to buyers."
While Canada's housing market as a whole will see a decline, the report states that Ontario and British Columbia will be affected the most.
"Our forecast has home resales in British Columbia and Ontario cumulatively sagging 45% and 38%, respectively, in 2022 and 2023, setting the stage for a home price index drop exceeding 14% from quarterly peak to trough in both provinces."
This welcome cooldown following a hectic housing crisis will certainly diminish some of the financial burden put on many new homeowners.
RBC says that the correction will most likely occur over sometime in the first half of 2023 and last "approximately a year — with some markets likely stabilizing faster than others."
This article's cover image was used for illustrative purposes only.