In 2023, steep price declines will restore sanity in Canada's housing market — according to a report by Desjardins. When compared to the all-time high that was set in February of this year, Desjardins forecasts that the national average price of a home will fall by over 25 percent by the time 2023 comes to a close.
In its most recent residential real estate, Desjardins stated that it anticipates a significant correction in the Canadian housing market. This was an adjustment from its previous forecast, which predicted a 15% drop in the average home price during the same time period. According to Desjardins, the gloomier forecast is the result of both less positive data on the property market and a more restrictive monetary policy than was originally anticipated.
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The Bank of Canada increased its benchmark interest rate by one full percentage point in July, which resulted in an increase in the interest rates associated with borrowing money for mortgages. Additional rate hikes are anticipated to take place this year. The report also states that house prices have fallen by more than four percent in each of the three months that preceded February when the national average home price touched a record $816,720.
In spite of the revisions made to the forecast, it is still anticipated that home prices in Canada would be higher than they were before the pandemic at the end of 2023. The provinces of New Brunswick, Nova Scotia, and Prince Edward Island, all of which saw significant price increases during the pandemic, are the most likely to have the highest price adjustments.
The authors also stress that the impending economic downturn will lessen inflationary pressures to the point where the Bank of Canada will be able to begin undoing the rises that they have made to interest rates. The Desjardins Group anticipates that the Canadian housing market will reach a stable state around the end of the year 2023.
Canada Housing Market – National Statistics – June 2022
Statistics released today by the Canadian Real Estate Association (CREA) show national home sales were down in June 2022. Between May and June 2022, home sales registered on Canadian MLS® Systems dropped by 5.6%. Although there were bigger drops in April and May, monthly activity has fallen to just below normal levels in June.
Sales were down in three-quarters of all local markets, led by Canada's largest cities, including the Greater Toronto Area (GTA), Greater Vancouver, Calgary, Edmonton, Ottawa, and Hamilton-Burlington. The real (non-seasonally adjusted) number of transactions in June 2022 was 23.9% lower than the previous year's record.
- National home sales fell by 5.6% on a month-over-month basis in June.
- Actual (not seasonally adjusted) monthly activity came in 23.9% below the June record set in 2021.
- The number of newly listed properties was up 4.1% month-over-month.
- The MLS® Home Price Index (HPI) edged down 1.9% month-over-month but was still up 14.9% year-over-year.
- The actual (not seasonally adjusted) national average sale price posted a 1.8% year-over-year decline in June.
In June 2022, the number of newly listed residences increased by 4.1% month over month. The monthly rise was mostly affected by an increase in new supply in Montreal, with slight drops in new listings in the GTA and Greater Vancouver. With fewer sales and more new listings in June, the sales-to-new listings ratio fell to 51.7%, its lowest level since January 2015.
It was also lower than the long-term national sales-to-new listings ratio of 55.1%. In June 2022, over three-quarters of local markets were balanced, with the sales-to-new listings ratio being one standard deviation above or below the long-term average. Nationally, there were 3.1 months of inventory at the end of June 2022, which was still historically low but gradually growing from the tightest circumstances ever recorded just six months prior. This measure's long-term average is greater than five months.
Will the Housing Market Crash in Canada?
Existing house sales and prices have decreased every month since February 2023 on a nationwide level. Prices have fallen by more than 4% in each of the three months leading up to June. Sales have also slowed, but the rate of reduction has slowed since the April low. This slowdown is a ray of hope in an otherwise bleak housing market picture, and the Desjardins Group anticipates it to continue.
The rate of fall in existing house sales will progressively slow as the market stabilizes until the end of 2023. The same may be stated for prices in general. This has led to a downward revision to the forecast they published in June. At the time, the group predicts that the national average home price in Canada will decline by 15% between February 2022 and the end of 2023.
They anticipate a 20% to 25% drop in housing values from peak to trough. On an annual basis, this would imply a 1.2% gain in 2022, followed by an 11.5% decrease in 2023. The reasons for this bleak prediction for Canada's housing market include worse statistics so far this year and more active monetary policy than originally expected, which has resulted in increased mortgage borrowing prices.
It is anticipated that the Bank of Canada's policy interest rate will peak at 3.25% late this year. However, the Canadian economy's weakness, which is mostly due to the housing market collapse, could compel the Bank to begin decreasing rates by the end of next year. Bond yields appear to have peaked, and markets appear to be anticipating this.
Regional Housing Forecast for Canada
The Canadian provinces that had the greatest price increases during the pandemic are expected to have the greatest price adjustments. As a result, the most significant price drops may occur in New Brunswick, Nova Scotia, and Prince Edward Island. Price increases in the Maritimes have been widespread, due in part to significant inbound migration from neighboring provinces during the epidemic.
As the change from full-time telework to hybrid work arrangements makes migrating to more cheap provinces less feasible, these jurisdictions may experience considerably lower housing demand in the coming months. However, prices in the Maritimes peaked later and fell less precipitously than in Ontario and British Columbia.
While property prices climbed less than on the East Coast, affordability in cities like Toronto and Vancouver was already deteriorating prior to the pandemic. It has only become worse since then, and in more places, as smaller towns faced the greatest price increases during the pandemic. As a result, the correction in Ontario and British Columbia has been more severe than elsewhere. However, the group anticipates that the rate of price decrease will reduce as foreign immigration, return to work, and increased affordability continues to give tailwinds to Canada's housing market.
Quebec prices started decreasing later than in Canada and haven't fallen as much. In April, the average home price was over $510,000, compared to over $1 million in Ontario and British Columbia in February, the same month the national average peaked. Quebec's adjustment is milder.
Prices are down 2% compared to 10% throughout Canada. Many provinces' prices have dropped. While Quebec house prices have tracked June's estimates, those numbers have been revised downward. By 2023, prices are estimated to be 17% lower than in June. This modified prediction reflects the market's quick return to balance and larger-than-expected mortgage rate rises.
Alberta, Saskatchewan, and Newfoundland-Labrador are oil-producing provinces. They’re now benefitting from post-pandemic tailwinds, largely in the form of higher commodity prices. The ensuing jobs and employees will boost current house sales and prices. Prairie province's sales are expected to dip less than other Canadian areas during the next two years.
Newfoundland and Labrador may witness lower sales than other commodity-producing provinces since increasing oil prices are less directly felt in its economy. Manitoba's housing market is more stable than others. The province won't be immune to rising interest rates and a slower global expansion, but its diversified economy and small supply-demand imbalances should avoid a catastrophic correction.
Bottom Line: Canadian Housing Market Outlook 2023
The Canadian housing market slump confronts families. Both house sales and prices have fallen swiftly and will certainly fall more in the next 18 months. This shift is helping bring rationality back to the Canadian real estate market, without diminishing the hardships some Canadians are enduring.
As prices decrease, many markets are rebalancing and affordability is improving. The housing market helps the Bank of Canada battle inflation. We expect the slowdown to alleviate inflationary pressures sufficiently for the Bank to reverse some rate rises next year. This will increase affordability when Canada's housing market stabilizes next year. Such events should set the stage for a durable recovery.
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