Despite rising interest rates, Canada’s national housing agency says it expects the pace of growth for both home sales and prices to remain elevated this year.

However, it does see the pace of growth pulling back to more moderate levels from historic highs, according to its recently released Housing Market Outlook.

“We expect the growth in prices, sales levels and housing starts to moderate from recent highs, but remain elevated in 2022,” said Bob Dugan, Chief Economist of the Canada Mortgage and Housing Corporation (CMHC). “Improving levels of employment and immigration are expected to be key factors as the impact of pandemic restrictions continue to recede.”

Looking ahead to 2023 and 2024, CMHC says the growth in prices will trend closer to long-run averages with sales and starts activity expected to remain above 5- and 10-year averages. “Price growth will likely continue to be led by markets with low listings, including Vancouver, Toronto and Montreal,” Dugan added.

April data shows prices easing, but still growing

April housing data from the country’s local real estate boards showed continued price growth compared to March in most metropolitan areas outside of Ontario.

In Vancouver, the MLS Home Price Index rose to $1,374,500, up 1% from March and 18.9% from a year earlier. In Montreal, the average price for a single-detached home was up 2.5% month-over-month to $580,000, a 16% increase from a year earlier.

Similarly in Calgary, prices were up 1.6% on a monthly basis and 16.9% from a year ago to $526,700.

In Ontario, prices in the Greater Toronto Area posted a decline of 3.5% compared to March and are down 6% from February’s all-time high. Compared to a year ago, average prices are still up 15%.

“There is evidence of buyers responding to increased choice in the marketplace, with the average and benchmark prices dipping month-over-month,” said Jason Mercer, chief market analyst of the Toronto Regional Real Estate Board. “It is anticipated that there will be enough competition between buyers to support continued price growth relative to 2021, but the annual pace of growth will moderate in the coming months.”

Prices could turn negative by year-end

Real estate analyst Ben Rabidoux of Edge Realty Analytics notes there’s somewhat of a lag effect when it comes to house price indexes.

“House price indexes do a poor job of picking up sharp inflection points,” he wrote in his latest newsletter. “Prices are already down from the February peak in major markets, but it will take several months before this shows up in HPI data.”

Despite signs of a weakening market, housing inventory levels remain low, which continue to provide support for home prices.

“With months of inventory still just 1.8, it will take several more months of deteriorating trends before headline prices officially print negative,” Rabidoux added.

Of course, much will also depend on the future path of Bank of Canada interest rates, which the BoC Governor has said need to rise higher in order to tame inflation.

The Bank has already hiked its target rate by 75 basis points (bps), bringing it to 1%. As a result, prime rate has risen by the same amount, to 3.2%, which has increased interest costs for borrowers with variable mortgage rates and lines of credit. 

“We are committed to using our policy interest rate to return inflation to target and will do so forcefully if needed,” BoC Governor Tiff Macklem said in a recent speech to the Senate Committee on Banking, Trade and Commerce. “How high rates go will depend on how the economy responds and how the outlook for inflation evolves.”

Current and prospective borrowers concerned about their ability to handle rising rates should talk to a mortgage broker to learn about the strategies and options that are available.