According to RBC’s recent housing brief, the largest bank in Canada foresees the conclusion of the real estate correction. Nonetheless, this doesn’t imply that the decline in prices has ceased. The bank estimates that housing prices are only 50% down and that a rebound is unlikely until next year. However, the bank anticipates a recovery in the market after inflation stabilizes in 2024, and interest rates start decreasing.
Canada’s Real Estate Correction Is Half Over
RBC reports that the Canadian real estate correction has reached the halfway point. The bank had initially projected a 15% reduction in the national RPS Index from peak-to-trough. At present, the bank reiterates that an additional 8% price decline is expected. It is worth noting that the bank is employing the RPS Index rather than the CREA HPI, which is typically used. As mentioned previously, RBC anticipates that this will be the most substantial decline in home prices in history. It appears smaller than other organizations’ predictions because movements in the CREA HPI are generally 2-3 times larger than those in the RPS Index.
Canadian Real Estate Bulls Will Be Disappointed
The Canadian real estate correction may be halfway over, but according to the bank, this does not imply an imminent boom in the market, which may disappoint the housing bulls. The bank expects the recovery to begin later this year, but it will be restricted by affordability and economic factors. Affordability has deteriorated considerably since 2021, and it will not be easy to address these issues. Although the bank foresees declining home prices, it does not anticipate substantial improvements in the near future.
Despite the fact that Canada’s economy has not yet experienced the expected downturn, the bank still anticipates it. The rest of this year is predicted to be relatively sluggish due to elevated interest rates, as it is only March. Inflation is not expected to return to target until 2024, and interest rates may start to decline to aid in growth.
Bank of Canada Expected To Hold Rates At This Level
According to RBC, the most recent rate hike occurred in January. While the market has priced in at least one more hike, the bank firmly believes that the Bank of Canada (BoC) pause will indeed be a pause. Although they do not expect any rate cuts this year, they anticipate that bond yields will gradually decrease throughout the year.
However, their outlook on yields is somewhat contradictory to reality, as they have been heading in the opposite direction. Despite the forecast being released this week, it appears that the calculations were performed prior to the recent surge in yields, which has been marked in red on their chart.
Regardless, RBC does not foresee a lenient credit market in the upcoming months. Although they have predicted improved conditions, they believe that credit will remain mostly restrictive until 2024. This aligns with the forecast of most, who anticipate that the Bank of Canada will initiate interest rate cuts at that time.
