Canada Mortgage & Housing Corp. (CMHC) has revised down its forecast for the national housing market and is now predicting a home price decline of as much as 15%.
Canada’s national housing agency has gone so far as to forecast a prolonged slump in the real estate market driven by higher interest rates charged on mortgages.
CMHC said in a new report that that national housing prices could slide 5% by the middle of next year but is revising its projections to build in a potential 10% to 15% decline in home prices.
Since CMHC’s last forecast in July of this year, Canada’s central bank has continued to raise interest rates to lower inflation, shocking markets with a full percentage point hike in July followed by a 75-basis point increase earlier in September.
The interest rate increases have been reflected in variable-rate mortgages that are tied to the prime lending rates of private sector banks.
Variable rate mortgages offered by Royal Bank of Canada (RY), which had been at less than 2% in February are now more than 5% and could even higher if the Bank of Canada continues raising rates as is widely expected.
The sharp increase in mortgage rates has led to prices across Canada falling for six consecutive months.
Royal Bank has calculated that total home ownership costs, including mortgage payments, now account for 60% of a typical household’s income, higher than the previous record of 57%.
