According to a major credit rating agency, the decline in the value of Canadian real estate will continue into next year. The 2023 projection that was provided by Fitch Ratings predicts significantly lower property prices for the following year. After three decades of steady price growth with no signs of abating, the affordability of housing is at an all-time low. When high rates are included in the equation, a decrease in demand is likely to occur in the near future as housing prices adjust. It is also anticipated that the cooling market will create a significant increase in the number of delinquencies.
It is anticipated that prices of Canadian real estate will drop next year
The recent prediction of declining real estate values across Canada was made by Fitch Ratings, the most recent company to make such a prediction. It is anticipated that prices will drop by between 5% and 7% in the year 2023, representing a nominal decrease of 15% from the peak to the trough. When inflation is at such a high level, it is essential to emphasise the importance of nominal terms. It is anticipated that prices would resume their upward trend in 2024, albeit at a slower pace than usual.
The Rate of Canadian Mortgage Defaults Is Expected to Sharply Increase
The percentage of Canadians who are behind on their mortgage payments is expected to climb dramatically during the next few months. The Fitch Ratings prognosis for the delinquency rate in 2023 is 0.25%, which is an increase of 11 basis points (bps) from this year’s projection. The increase is quite dramatic when one considers that it indicates more than a 75 percent increase in mortgage delinquencies. The rate is still quite low, and it is mostly compensating for the historically low rates that are typical of bubbles.
Indeed, there is a low rate of delinquency in bubbles. According to the company, there is no justification for going into default if the residence is sold in a matter of days or less. If the market is doing well, a borrower who is having trouble can sell their home and avoid going into default on their mortgage. Fewer people are willing to acquire that property at this price since it is not affordable for them, and demand is not particularly strong. In most cases, this is what causes an increase in criminal behaviour.
Homeowners in Canada are sitting on a mountain of equity, which will help keep interest rates from becoming unreasonably high. They have the ability to draw on or borrow against, that equity if they find themselves in a difficult situation regarding the cost of living. It also means that they will have a lower risk of entering a scenario in which they have negative equity and the lender forces them to sell the property.
According to the projection made by the company, lenders have also been collaborating with borrowers. Numerous current borrowers have been receiving amortisation extension offers from financial institutions. It will set you back more money, but the higher interest rates will make it less likely that you will default on your payments.
The latest company to make these predictions is Fitch Ratings, which sees a decline in housing prices and an increase in defaults. Companies such as BMO, Oxford Economics, and RBC have all predicted more significant price declines in the future. This is most likely attributable to the more pessimistic outlooks that those companies have in contrast. If the economic contraction is more severe than expected, Fitch anticipates a further fall in prices.