Updated Jan. 14, 2023 3:44 p.m. EST
Published Jan. 13, 2023 10:55 p.m. EST
Home prices in Canada likely won't drop much further due to the country's ongoing shortage of new homes, even as rising interest rates curb some demand in the market, the deputy chief economist for the Canada Mortgage and Housing Corporation (CMHC) says.
Speaking to CTV National News Toronto Correspondent Heather Butts, the CMHC’s Aled ab Iorwerth says because the supply of housing remains a problem in many parts of Canada, first-time homebuyers will still have a difficult time entering the market.
"We've seen quite a large price decline but there's such a shortage of new construction of new houses in Canada that this inexorable rise in demand is just going to continue in the future," Iorwerth said.
"Don't know exactly when it's going to kick in again, but the shortage in supply means the prices can't go down too much further."
A report released Friday by Royal LePage found that the median price of a home in Canada in the fourth quarter of 2022 fell 2.8 per cent to $757,100 compared to the end of 2021 — marking the first year-over-year decline since the end of 2008 during the financial crisis — although prices are still well above pre-pandemic levels.
It comes as the Bank of Canada has tried to bring inflation down by raising its key interest rate seven consecutive times since March 2022, from 0.25 per cent to 4.25 per cent.
Economists are also predicting, at the very least, a mild to moderate recession for 2023.
The Bank of Canada's interest rate hikes, in turn, are leading to higher mortgage rates.
"I don't think their intent is to really target house prices," Iorwerth said. "Their intent is to really get inflation under control. But the main effect of it is going to be through the housing market."
Over time, as people refinance their mortgages, they will be doing so at higher rates meaning they will have fewer opportunities to spend or save, he said.
Household debt is already at a concerning level in Canada, Iorwerth added, and the challenges are not just affecting homeowners.
"If you're looking for a new place to rent, the rent is at a very high rate, so the whole rental market is stretched," he said. "So there's a lot of challenges in the housing system at the moment."
With files from The Canadian Press and CTV National News Toronto Correspondent Heather Butts