RBC sees 14% home price decline as homebuyers are 'feeling the heat'

Royal Bank of Canada is warning that Canadian homebuyers are feeling the heat from the rapid increase in interest rates.

In a note to clients Thursday, RBC Assistant Chief Economist Robert Hogue said he expects prices will continue to decline as the central bank increases the cost of borrowing, which RBC sees topping out half a percentage point above its earlier projections.

“The national composite MLS Home Price Index fell a further 1.6 per cent month-over-month in August. It’s now down 7.4 per cent since February’s peak, within striking distance of the eight per cent peak-to-trough decline recorded during 2017-19 downturn,” he stated.

“We see that trend continuing in the near term with the Bank of Canada poised to stay in tightening mode until the end of this year. We have updated our policy rate call to four per cent by December, up from the 3.5 per cent we previously expected.”