If you have been keeping track of the Canadian property market recently, you would be aware of the significant surge in the housing market during the summer of 2021. This increase in demand from buyers caused both asking and selling prices to rise considerably.
At the onset of the COVID-19 pandemic in April 2020, the average selling price of a house in Ontario was just below $600,000; by September 2021, it had increased to over $880,000.
As the housing boom has come to a halt and prices are starting to stabilize, you might wonder what the real estate market in 2023 has in store.
This article looks at the 2022 real estate market and provides a forward-looking analysis for 2023.
What Does Canada’s Housing Market 2022 Statistics State?
Based on the report released by CREA, house sales and prices in Canada fell in November 2022 compared with the prior year.
The number of transactions in November 2022 was noticeably lower than the preceding year and even fell below the typical 10-year average for November sales before the pandemic. The MLS Home Price Index (HPI) also decreased monthly and yearly.
Furthermore, the average national sale price experienced a significant decrease compared to the previous year. These data points suggest a cooling down of Canada’s real estate market towards the end of 2022.
What the Future Holds for 2023: Canadian Housing Market
In 2023, the Canadian housing market is expected to continue cooling down, following a decline in home sales and a slight drop in home prices at the end of 2022. However, it is unlikely that there will be a significant decrease in home prices, particularly in Ontario, as the market balances itself out.
Due to high interest and mortgage rates, the demand for housing has decreased, even though the supply has stayed the same or increased. As a result, fewer buyers are looking to purchase homes, and many homeowners choose to save instead of buy. Additionally, the high rates are expected to cause rent prices to rise, especially in major cities like Toronto, Montreal, and Halifax.
Two banks, Desjardins and T.D. Economics predicts home prices will drop by 25% in provinces other than Ontario by the end of 2023. For smaller cities, such as London, Kitchener Waterloo, Barrie, and Georgian Bay Area, a 15% price decrease is expected. However, it’s important to note that these are just predictions, and actual market conditions may differ.
Stability will be seen in Interest Rates
The Bank of Canada has paused its rate hiking cycle, and it is unlikely that any interest rate cuts will occur until 2024. This development is expected to bring stability to the market but may not be sufficient to bolster it.
A decline in long-term bond yields over the next year will be perceived as a positive signal of a reversal, but the interest rate conditions will remain restrictive for some time.
Further Decrease Expected in House Prices shortly
Home prices are anticipated to decrease further soon, with the national RPS HPI projected to decline by an additional 8% by the third quarter from the fourth-quarter levels.
Markets in Ontario and B.C. remain at the most significant risk of a downside, with peak-to-trough price predictions ranging from -19% in Ontario to -5% in Newfoundland and Labrador.
Homebuyers, particularly in expensive markets like Ontario and B.C., will continue to face affordability obstacles. Consequently, it is improbable that the market will experience a swift rebound, and affordability concerns will hinder any significant easing of buyers’ financial constraints.
Will House Affordability increase in 2023?
While there may be a slight price decline, the housing market in Ontario is not expected to become significantly more affordable.
This is because real estate prices in Canada have been disconnected from salaries and incomes for a long time, and the high mortgage and interest rates make it difficult for many people to afford homes.
Additionally, rental prices are expected to rise, making it even harder for people to afford a house. The ban on non-Canadian homebuyers may also help improve affordability for Canadian citizens, but it remains to be seen how effective this policy will be in practice.
Conclusion
Analysts forecast that in 2023, the prices in various cities throughout Canada will drop, but the reduction will not be substantial enough to render them accessible to many individuals.
Canada’s housing market has faced turbulent times, but it might be time to thrive again. It is expected for sales activity to gradually grind lower through 2023 before rebounding in the second half of the year and into 2024. Lowered debts and support from elevated levels of immigration should help drive the market forward.
While each province has its unique outlook, the housing market as a whole is set to soar again.
