One of Canada’s big banks is calling for the country’s cooling housing market to hit a low point in the spring of 2023 before fully adjusting to rising interest rates.

RBC assistant chief economist Robert Hogue said in a report on Friday 23 September that home buyers are “on the defensive” as the Bank of Canada continues to raise interest rates. The central bank delivered a 75-basis-point hike last week and signalled that rates will have to rise further in the months ahead as core inflation remains high.

But the higher cost of borrowing has sent a chilling effect through the housing market, with the Canadian Real Estate Association (CREA) reporting on 22 September that home sales in Canada were down by 25% in August compared with the same month last year.

CREA also trimmed its forecast for both housing activity and price growth. It now expects home sales to decline 20% by the end of 2022 relative to last year’s peak.

However, Hogue’s forecast was even more dire, expecting a 23% decline in year-over-year sales by the end of this year and a further 14% drop in 2023. RBC is now calling for the Bank of Canada’s benchmark interest rate to hit 4% by year’s end, up from an earlier call of 3.5%. RBC expects property prices to decline by 15-20% peak to trough in the country.