Higher Interest Rates: A Clear and Present Danger—Canada’s Two-Year Housing Outlook

Document Highlights

• Canada’s existing housing market is cooling as interest rates rise. Some slowing is welcome, since frenzied markets in the last few years impaired affordability, stressed potential homebuyers, and fostered unwelcome speculative activity.
• National resale price growth will slow to just under 11 per cent this year after a record 22.6 per cent increase in 2021. Emerging price easing will persist in 2023, producing an annual price decline of roughly 6 per cent.
• There is a risk of a larger price correction if current sales declines accelerate or if investors who held homes in expectation of ongoing price gains sell their units into this easing market.
• Housing starts will fall to 244,000 units in 2022, from last year’s 45-year high near 271,200 units. Rising interest rates and capacity-challenged builders will outweigh low inventories to produce the drop.
• Early-year resale market strength and continued renovation growth will lift total residential investment in 2022 despite a drop in new construction investment. We see total residential investment falling in 2023.