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Canada’s housing agency is forecasting home prices will moderate this year as it becomes more expensive to borrow and buyers increasingly get priced out of the market.

Home price growth already started to slow in March, particularly in places where real estate values have almost doubled over the past two years.

Canada Mortgage and Housing Corp. (CMHC) said the annual average home price could be as high as $782,400 at the end of this year, or $740,700 at the lower end of its forecast range.

That would be an increase of 13.7 per cent or 7 per cent over 2021′s average of $687,910, according to a new forecast for 2022 released on Thursday. An increase in that range is lower than last year’s 21-per-cent jump, a slowdown CMHC partly attributed to higher mortgage rates and unaffordable home prices.

But given that the national average was $796,000 in March, that means home prices are expected to dip this year.

From February to March, home prices fell in low single-digit percentages in regions across Southern Ontario such as Brantford, Cambridge, Kitchener-Waterloo and Hamilton-Burlington, according to the latest figures from industry group Canadian Real Estate Association. The association said it was too early to say whether March was the start of a cool-down in the market.

Over the past two months, the Bank of Canada has increased its benchmark interest rate from 0.25 per cent to 1 per cent to help combat soaring inflation. Although that is pushing up borrowing costs, CMHC said home prices would remain on an upward trajectory because demand for real estate is outstripping the supply of homes available for sale.

“The impact from higher rates on housing demand and price growth will be muted in 2022,” said the report, adding that this imbalance was particularly pronounced in major cities such as Vancouver, Toronto and Montreal.

CMHC expects the benchmark interest rate to reach 2.25 per cent by next year and predicts the average annual home price to remain flat or climb in the low-single-digit percentages over the following two years. The agency’s chief economist, Bob Dugan, was adamant that there would not be a price correction under the current economic conditions.

The CMHC home price forecast is similar to the real estate industry’s own outlook, which calls for a 14.3-per-cent annual increase in the average national price.

CMHC expects the volume of home resales to decline between 4 per cent and 10 per cent year over year and said developers could match last year’s record for new home construction.

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