Rate hikes could lead to 10% fall in home prices: Capital Economics

Rising borrowing rates could shave 10 per cent off Canadian home prices over the next year and lead to an even bigger drop in real estate investment, according to Capital Economics.

“When interest rates rise, home sales are usually the first domino to fall and this time is no different,” said Stephen Brown, senior Canada economist at Capital Economics, in a note to clients on Monday.

“With sales plunging, it is no longer a question of whether house prices will fall, but rather how much will they fall by?”

The latest housing data for April showed meaningful sales pullbacks are already underway in many major markets across Canada including Toronto, Vancouver and Montreal as higher interest rates sideline some potential homebuyers.