Bloomberg News reports that home prices in Canada dropped by a record figure in 2022. The surging interest rates led to a market adjustment that may go on for some time now.
In December, the benchmark home price dropped by 1.6% to C$730,600, recording the total decline since February’s peak at 13.2%, as revealed by the Canadian Real Estate Association Monday.
The Biggest Decline Ever
The drop recorded was the biggest undulating falloff since the group started compiling data in 2005. The past year witnessed the largest drop for one calendar year since inception, with an overall drop of 7.5%.
There are fears that the economy might be subjected to recession. Aside from that, the Bank of Canada has warned of more hikes in rates to combat continuous inflation. Also, it is slated that the housing market might be subjected to continued pressure in the upcoming months.
The Fate of Mortgage Holders During Real Estate Boom in Canada
Many home buyers took debt at floating rates for purchasing property in Canada when the pandemic-era real estate market was booming. However, these borrowers might feel the strain if the mortgage cost continues to stay high.
Aside from the same, an economic slowdown might give rise to unemployment. This would, in turn, make it difficult for the borrowers to meet their mortgage payment requirements. These individuals might fall behind on payment, reports Bloomberg News.
Says Douglas Porter, who is Bank of Montreal’s chief economist, as everyone looks ahead to the vital spring selling season, one of the questions is who will be emerging with greater force from hibernation? Will it be the sellers or the buyers who will lead?
He also said in the note that it is anticipated that the market might be able to digest the interest rates in their rapid run-up. Also, the buyers might appear hesitant to re-emerging and have been keeping the costs under pressure for quite some time now.
Pulling Back
So far, the main cause of the housing slump has been the pullback among the buyers that were found to have priced out because of the surged interest rates.
As of December, the total number of transactions slumped 39% in comparison to last year on a non-seasonally adjusted basis year on year. The same occurred as the market approached the peak before the interest rates rose.
Despite the drop of the past year, the home prices in Canada surged so fast at the time of the pandemic buying spree that in December, the national benchmark was found to be at 33%. This figure is higher than what it was at least three years ago.
The Royal Bank of Canada generated a report last month highlighting that for a typical buyer dependent on the mortgage, there was a slump in housing affordability to the worst level ever, with rising mortgage rates and prices still elevated.
