Royal Bank of Canada Assistant Chief Economist Robert Hogue is calling the peak for the Canadian housing market after its record-setting run.

In a report published Thursday, Hogue said the residential real estate market will likely top out this spring, as the Bank of Canada’s rate-hiking cycle slams the brakes on activity and leads to a moderation in prices.

“We now expect home resale activity to slow more quickly than previously anticipated and, perhaps more important, we see prices peaking this spring as market sentiment sours from extreme bullishness,” he said.

“In this altered landscape, local markets could experience a mild price correction, partly reversing outsized gains recorded in the past year.”

According to the Canadian Real Estate Association, the average non-seasonally adjusted home price was $796,000 in March, up 11.2 per cent year-over-year. However, that was a moderation from the record $816,720 from a month before.

Home sales activity also slowed in March, down 16.3 per cent from the all-time sales record hit a year before.

Hogue said he expects those trends will continue, though he noted the rapid run-up in prices so far this year will still likely result in higher average annual prices compared to a year ago.

Overall, Hogue said the national benchmark price could drop close to five per cent on a quarterly basis from peak to trough.

He estimates home sales activity will fall 13 per cent this year, with a further 14 per cent decline in 2023. That won’t translate into lower average prices in 2022 due to the strong start to the year, as RBC sees aggregate prices up 8.1 per cent this year before falling 2.2 per cent in 2023.

Hogue said he expects price declines will be uneven on a geographic basis, with more price pressure in markets like Vancouver and Toronto.

Hogue said there is no escape for prospective homebuyers who have been turning in droves toward variable-rate mortgages due to the recent rise in fixed-rate mortgages.

“Fixed mortgage rates have gone up materially since the fall when financial markets began to anticipate the [Bank of Canada’s] new stance. The impact on mortgage borrowing has been muted so far because borrowers have instead gravitated toward variable-rate mortgages, for which rates remained exceptionally low,” he said.

“But the Bank of Canada’s hiking campaign will soon make variable rates more expensive too, leaving borrowers with no escape.”

Canadians have increasingly been flocking to variable-rate loans, which now account for more than half of all new mortgage issuances.

Hogue said that with rising rates, Canadians will swiftly see their purchasing power shrink, more than reversing gains made during the ultra-low rate environment of the past two years.

“Even those who still qualify for a mortgage will see higher rates reduce the size of the mortgage they can get — and the price they can pay. For households earning the median income, for example, the rise in fixed mortgage rates will shrink the maximum purchase budget by roughly 15 per cent,” he said. “That will more than reverse the increase in 2020 and early-2021 when declining rates provided substantial added budget room.”