Bank of Canada expected a steeper home price decline. Why it could still come

globalnews.ca:

The Bank of Canada says home price drops driven by the recent hikes to interest rates weren’t as steep as monetary policymakers would usually expect, thanks largely to a “structural” lack of supply.

But economists who spoke to Global News say the housing correction likely isn’t finished, with more declines to come.

Carolyn Rogers, senior deputy governor at the Bank of Canada, discussed the central bank’s view of the housing market on Wednesday after holding interest rates steady for the second consecutive time.

She said that the housing market has been more resilient to rate hikes to date than historical patterns would have suggested.

Rogers explained that home purchases are among the most sensitive parts of the economy to respond to interest rate changes, as they’re big-ticket items typically bought with a loan.

“As interest rates come down, house prices will move up a bit and they’ll come off as interest rates come back up,” she said of historic norms.

“We haven’t seen that same dynamic,” Rogers continued.

“They’ve come off a bit this time, but we’re not seeing, relative to the degree of rate increases, the decline in house prices that we would expect.”

Home prices did see a material drop in the first stages of the Bank of Canada’s tightening cycle.

Between March 2022 when the central bank began its rate hikes to January 2023 when it announced a “conditional pause” in tightening, Canadian Real Estate Association data shows an 18-per cent drop in the aggregate benchmark price of a home.

After that point, home prices rose another eight per cent in the spring rebound before peaking again in June, with a relatively slower decline in aggregate prices observed nationally since then.

Stephen Brown, deputy chief North America