CMHC Estimates | A key rate hike could reduce house prices by 5%

Hugo Zoncas
Press

According to a CMHC note published on Monday, the cut would occur in the scenario of the key rate reaching 3.5%.

In the case of a more moderate increase to 2.5%, house prices would fall by 3% by mid-2023, according to the firm.

Economists expect the Bank of Canada to raise its key rate in the coming months, starting with a 0.75 percentage point hike on Wednesday. The key rate will therefore go from 1.50% to 2.25%.

Fixed rates are approaching 6%

CMHC Chief Economist Bob Dugan suggests that “the fixed rate on five-year mortgages will rise to 5.7% by the end of 2022” if the central bank chooses a more muscular hike scenario. They are currently around 5.2%.

“Rising rates slow economic growth, which increases unemployment and reduces wage growth,” CMHC wrote. Which makes access to property more difficult, which lowers prices.

“weak depression”

CMHC is projecting growth in gross domestic product (GDP) of 3.4% to 2022 and 0.7% to 2023 on key rate hikes in the “muscle” scenario. Then economic growth reaches its lowest point. Canada will experience a “mild recession” for a short period in late 2022 and early 2023.

Such a scenario would increase the unemployment rate in the country to 7%. If the central bank chooses instead to cap the key rate at 2.5%, the CMHC predicts that the unemployment rate will reach 6.2% in 2023.

From 2024, the company expects growth to return and mortgage rates to stabilize. According to the firm, housing prices will rise again.

“Supported by rising household income and migration, house prices are expected to return to positive but moderate growth,” the note said. Continued high prices over the outlook period will weigh on the affordability of home ownership. »

So homeowners don’t see their homes depreciate for trouble.