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A sold sign is seen outside a home in Ottawa in this file photo.Justin Tang/The Canadian Press

Canada’s national real estate association is forecasting another year of housing market declines, after home prices sank for the 10th straight month in December and as households continue to struggle with higher borrowing costs.

The home price index fell to $730,600 last month, a 1.6-per-cent drop from November and 13 per cent lower than the February peak. That marks the largest downward swing since the financial crisis of 2008 and 2009, when the index fell 9 per cent. It also tops the 7-per-cent slide in 2018, when the federal government toughened up mortgage qualifications. (The index excludes sales of extremely expensive homes and is the industry’s preferred measure of home prices.)

Home resales increased from November to December but were still 39 per cent below the volume of activity of December, 2021, when the pandemic’s real estate boom was in full swing.

The Canadian Real Estate Association (CREA) is predicting the downward trend will continue this year, as it has become increasingly difficult for first-time homebuyers to qualify for a mortgage.

CREA said this year’s volume of activity will be 0.5 per cent lower than in 2022, with the largest decreases in Alberta, Manitoba and New Brunswick. CREA also expects Ontario resales to drop by 0.9 per cent. The association predicts the annual average price nationally will fall 5.9 per cent from last year, with the steepest declines in Ontario, B.C. and Quebec.

Although home prices have dropped, they are still 33 per cent higher than in 2019, prior to the start of the pandemic. In many parts of Ontario, the country’s most populated province and largest real estate market, average home prices are above $1-million. Meanwhile, the cost of a mortgage has doubled over the past year.

“It will likely remain quite difficult for many first-time buyers to enter the housing market until mortgage rates are lower than they are today,” CREA said in a news release accompanying their forecast.

With inflation still high, the Bank of Canada is expected to jack up its overnight lending rate yet again at its upcoming monetary policy announcement, on Jan. 25. The central bank’s benchmark interest rate is currently 4.25 per cent. A year ago, it was 0.25 per cent.

CREA did not provide an outlook for cities and smaller regions. But so far the suburbs of Toronto and Vancouver, as well as less populated cities and areas, have recorded the biggest price drops. That includes the Fraser Valley and the Chilliwack district of B.C., as well as Cambridge, Brantford, Burlington and Kitchener-Waterloo in Southern Ontario.

Despite the forecast, CREA called this year the start of a turnaround, citing the steady volume of activity in the latter part of last year. This activity suggests “the downward adjustment to sales activity from rising interest rates and high uncertainty may be in the rear-view mirror,” the association said. It expects the market to rebound in 2024, with sales increasing 10 per cent and the average price rising 3.5 per cent.

The report also highlights another sign that homeowners may be weathering higher mortgage rates. The number of new listings has been consistently lower than in 2021. That suggests that homeowners have not been forced to put their properties up for sale. Over the November-to-December period, new listings slumped 6.4 per cent.

“There are no real signs so far that forced selling is dominating the supply picture,” Rishi Sondhi, an economist with Toronto-Dominion Bank, said in a research note. Mr. Rishi predicts the average home price could fall as much as 21 per cent from the first quarter of 2022 through the end of March.

Other private-sector economists also expect home prices to bottom out this year. Desjardins Group’s Randall Bartlett sees the average home price falling about 21 per cent from the February peak. Like CREA, Mr. Bartlett expects the housing market to start recovering in 2024.

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