Canada's soaring house prices will decline sharply next year, but still not enough to make them affordable as the Bank of Canada is set to continue raising interest rates and keep them higher for longer, Reuters polls showed.

Fuelled by near-zero interest rates, already-elevated prices in one of the world's hottest housing markets have surged over 50% since the pandemic began.

The Aug. 12-30 poll of 14 property analysts showed average Canadian house prices would rise 10.3% this year, slower than the current pace of around 11%.

Although prices have declined nearly 6% since the BoC started hiking the overnight rate in March, analysts say it will take years for affordability to return, if ever.

Average house prices were expected to slump 7.8% next year, significantly more than the 2.2% fall predicted three months ago. If realized, that would be the biggest decline since at least 2005, when the Canadian Real Estate Association started collecting house price data.

Five respondents predicted a double-digit fall, as much as 18.2% next year. House prices in Toronto and Vancouver were forecast to drop 8.5% and 7.3% in 2023 after surging 13.0% and 10.6% this year.

"The pandemic may not be over but the pandemic-era housing market boom certainly is. And the bottom is likely many months away still as our central bank has more work to do," said Robert Hogue, assistant chief economist at RBC.

Over three-quarters of economists, 20 of 25, who participated in a separate Aug. 26-Sept. 1 poll said the BoC would raise rates by a still-hefty 75 basis points next week after a full percentage point rise in July, taking it to 3.25%.

"The BoC's outsized 100 basis-point rate hike delivered on July 13 threw ice-cold water on the market - disqualifying some buyers from obtaining a mortgage," said Hogue.

"Our expectation for an additional 100 basis-point rate increase over the next two rate announcements... will no doubt keep chilling things."

What is not cooling much yet is consumer price inflation.

Despite easing slightly in July to 7.6% from a near 40-year high of 8.1% in June, BoC Governor Tiff Macklem said it would "remain too high for some time," implying the central bank, which has already raised rates by 225 basis points this year, still has more to do.

The BoC was expected to deliver another 25 basis points in October to 3.50%. All 17 economists answering an additional question said the risks were skewed toward a higher peak overnight rate than they currently expect.

Seventeen of 21 said once the BoC reaches its peak, it was more likely to hold rates for an extended period than cutting them relatively quickly.

That is likely to keep pressure on economic activity, particularly in the rate-sensitive property sector, where prices have gone far out of reach for many people.

When asked to rate average Canadian house prices on a scale of 1 to 10 where 1 was extremely cheap, 5 priced about right and 10 extremely expensive, the median forecast of 13 contributors rated it 8. For Toronto and Vancouver, the rating was 10.

A median of seven responses on a separate question showed prices needed to fall nearly 18% to be fairly valued. A few said they need to fall much more.

"The fact is home prices have been disconnected from incomes and rents for quite some time," said John Pasalis, president at Realosophy Realty.

"Even if benchmark house prices fall another 30% nationally, this will just put prices back to Feb 2020 levels (pre-COVID) which were not affordable at that time, but buyers will also be faced with higher interest rates compared to 2020."

(For other stories from the Reuters quarterly housing market polls:)