Red-hot Canadian property market to lose some steam in 2022: Reuters poll - Reuters

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BENGALURU, Dec 7 (Reuters) - Canada's double-digit house price inflation will lose steam next year, but affordability is still almost certain to worsen in one of the world's hottest property markets, according to a Reuters poll of analysts.

A rush to purchase homes ahead of expected increases in Canadian interest rates next year is boosting the housing market in the final quarter, with prices skyrocketing 18.2% in October compared to the year-earlier period.

Extra froth in the market, driven by investors fueling perceptions that prices will keep rising, has prompted the Bank of Canada to recently warn of an increased risk of a correction.

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"Affordability is unlikely to improve next year as prices should march higher, even as interest rates creep upwards as well," said Rishi Sondhi, economist at TD Economics, who expects house price inflation to slow considerably next year.

"We think rate hikes will weigh on, but not upend, demand, as the macro backdrop should remain supportive for sales."

Average house prices in Canada are expected to rise 18.6% this year, up from a 16.0% rise predicted in an August poll.

But those increases were forecast to slow significantly, to 5.0% in 2022 and 2.0% in 2023, according to the poll of 15 market analysts which was conducted from Nov. 17 to Dec. 6 and released on Tuesday. That compared to rises of 3.2% and 2.6%, respectively, in the August poll.

Only two respondents expected prices to fall in 2023, and by modest amounts.

Asked what would have the biggest impact on house prices next year, nine of 14 respondents said higher interest rates or tighter monetary policy. The remaining five cited supply constraints.

A follow-up question on how many basis points of interest rate hikes would significantly slow housing market activity had a median forecast of 100, with predictions in a range of 75 to 175 basis points.

Canada's central bank is expected to start raising interest rates by the end of the third quarter next year.

"One or two rate increases is unlikely to have a meaningful impact, but if we see four or more rate increases in 2022, this should take some demand out of the market, especially from interest rate-sensitive investors," said John Pasalis, president of brokerage and research firm Realosophy Realty.

For many first-time home buyers, prices have climbed beyond their reach and a supply shortage of housing units has only aggravated their woes.

"Investors, house 'flippers,' and speculators, who according to the Bank of Canada account for over 20% of home purchases, have aggravated the severe demand-supply imbalance, boosted prices even higher and made housing more vulnerable to a correction," said Tony Stillo, director of economics for Canada at Oxford Economics.

All 15 analysts who answered a question about affordability over the next two to three years said it would worsen.

"Out-of-reach housing prices will invariably lead more Canadians to rentals, especially if they have to live close to where they work. However, people who can work remotely will continue to migrate out of more expensive urban centres and 'drive until they qualify,'" Stillo said.

(For other stories from the Reuters quarterly housing market polls: )

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Reporting by Swathi Nair; polling by Indradip Ghosh and Sarupya Ganguly; Editing by Ross Finley and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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