Ontario's House Prices Are Actually Expected To Drop Next Year & Here's Why

There may be some hope yet for anyone dreaming of owning their own home in Ontario because a recent housing report is showing prices are expected to drop next year.

The Royal Bank of Canada forecasted how the Bank of Canada's interest rates could impact the housing market across the country, and it might finally bring some good news to prospective homebuyers in Ontario.

"But with inflation at a three-decade high, the Bank of Canada is now altering its course—signalling it will hike interest rates significantly in the year ahead. We think this will be a game-changer for the market," the RBC report reads.

According to the forecast, the Bank of Canada bumped up its interest rates to 1.0% and RBC believes it'll jump up another percent in six months, which is the largest increase the country has seen since the mid-00s.

Fixed mortgage rates have also gone up, but the higher rates will cut the size of the mortgage prospective homeowners can qualify for and the price they can pay, the report reads.

"For households earning the median income, for example, the rise in fixed mortgage rates will shrink the maximum purchase budget by roughly 15%. That will more than reverse the increase in 2020 and early-2021 when declining rates provided substantial added budget room," the report reads.

So, how will this impact Ontario's real estate market?

Well, RBC predicts that there will be an annual price drop next year in Ontario, and they predict that there will also be an intense "downward price pressure" for Toronto's notoriously pricy market.

But before that happens, house prices will probably spike first.

"We think prices will generally peak this spring before weakening modestly through the remainder of this year. However, stronger-than-ever expected gains so far this year will result in a higher annual average price for 2022 than we previously anticipated," the report reads.

Average benchmark prices for homes will go up to 8.1% across the country first in 2022, but RBC thinks that next year it will decline by just over 2%.

For Ontario, RBC's forecast sees aggregate home prices costing $936,900 in 2022 before dropping down to $915,300 the following year.

This article's cover image was used for illustrative purposes only.