In 2023, steep price declines will restore balance 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.
<<Also Read: US Housing Market Predictions>>>
According to top TD Economics, Canada's housing market won't rebound until 2024. Their current forecast is that the Canadian average home prices will retrace around half of the gains gained during the pandemic, albeit how the supply picture develops is a critical risk to this forecast. With rising interest rates causing larger monthly payments for homeowners, some may be forced to advertise their properties (although so far, the level of new supply hitting the market each month remains subdued).
If a sufficiently large number of these homeowners end up listing their homes, it could downwardly pressure prices by more than what they anticipate. Sales have already cratered by over 40% since February, are trending at levels last consistently seen in 2012, and appear to have undershot levels in line with fundamentals like income and housing supply.
And of course, they increased in October, bringing the 3-month moving average of sales growth to -1.7%, the best showing since March. However, they anticipate further rate hikes by the Bank of Canada, which will continue to weigh on demand and prices. In fact, they should continue dropping through the early part of 2023.
As of October 2022, Canadian existing home sales increased by 1.3% m/m in October although were still 17% below their pre-pandemic levels. Sales were up in eight of 10 provinces, with the steepest increases taking place in PEI (+26.3% m/m), B.C. (+5.8%), Manitoba (2.4%), and Alberta (2.2%). In contrast, sales dropped in Quebec (-2.4%) and Newfoundland and Labrador (-1.5%).
Canada Housing Market – National Statistics – November 2022
The recent report released by the Canadian Real Estate Association (CREA) shows national home sales increased slightly in October 2022. Between August and September 2022, home sales registered on Canadian MLS® Systems dropped by 3.9%. Month-over-month losses have been gradually smaller from May to August.
The September result added to the current sales downturn, which began with the Bank of Canada's first rate hike in March. While sales fell in around 60% of all local markets from August to September, the national figure was lowered by the fact that decreases occurred in Greater Vancouver, Calgary, the Greater Toronto Area (GTA), and Montreal.
Key Points from the Canadian Housing Report
- National home sales were up 1.3% on a month-over-month basis in October.
- Actual (not seasonally adjusted) monthly activity came in 36% below October 2021.
- The number of newly listed properties edged up 2.2% month-over-month.
- The MLS® Home Price Index (HPI) declined by 1.2% month-over-month and was down 0.8% year-over-year.
- The actual (not seasonally adjusted) national average sale price posted a 9.9% year-over-year decline in October.
“In October, sales across the country increased for the first time since before interest rates began to climb last winter,” said CREA Chair Jill Oudil. “Of course, we knew there was demand, so it's simply been a matter of some waiting as borrowing costs and prices have adjusted.” In 2023, sellers and buyers are likely to return to the market, but it is a significantly different market than it was just a year earlier. “As usual, your best chance for information and help on how to navigate the current market is to contact your local REALTOR®,” added Oudil.
“October offered another month's worth of data indicating that the slowdown in Canadian housing markets is coming to an end,” said Shaun Cathcart, Senior Economist at CREA. “Sales actually increased from September to October, and the month-to-month price reduction became lower for the fourth month in a row.”
In October, the number of newly listed houses increased 2.2% month over month, with advances in the Greater Toronto Area (GTA) and the British Columbia Lower Mainland balancing reductions in Montreal and Halifax-Dartmouth. With sales increasing slightly less than new listings in October, the sales-to-new listings ratio fell to 51.6% from 52% in September. This measure's long-term average is 55.1%.
National inventory stood at 3.8 months at the end of October 2022, up from 3.7 months at the end of September. While the number of months of inventory is substantially below the long-term average of roughly five months, it is nevertheless significantly higher than the all-time low of 1.7 months set in early 2022.
In October 2022, the Aggregate Composite MLS® Home Price Index (HPI) fell 1.2%, the smallest drop since June. The Aggregate Composite MLS® HPI fell 0.8% year-over-year in October. In October 2022, the national average home price was $644,643, down 9.9% from the previous year. Greater Vancouver and the GTA, two of Canada's most costly housing areas, greatly impact the national average price. Excluding these two markets decreases the national average price by $125,000.
Will the Housing Market Crash in Canada?
The reasons for the 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.
As mentioned above, TD Economics has also changed its housing market projection for Canada to allow for greater sales and price falls in 2023, followed by a rebound in 2024. According to the bank, home prices in Canada will fall another 11% in 2023, after falling 22% since record highs in February. Sales will fall 16% next year.
TD predicts housing sales will bottom out 20% below pre-pandemic levels in early 2023 due to rising interest rates and exorbitant costs making home-buying impossible for most Canadians. TD predicts a housing market revival in 2024. The bank predicts 2024 home sales will rise 19% and prices will rise 6%.
The affordability constraint is harsher for Canadians than for Americans because the average Canadian home price is far higher than the US median price of $390,000. The typical home price in Canada peaked at $604,000 in February before declining to $472,000. Canadian dollar = $0.74. Canada's affordability index—using the common metric that monthly housing costs shouldn't exceed 30% of monthly income—is similarly tougher.
The average Canadian home costs 67% more than the average household can afford, according to the Royal Bank of Canada. The research recommended the average household should spend 60% of its income on housing. Desjardins predicts that house affordability in Canada will worsen for another three to six months as interest rates rise.
Since March, Canada's central bank has hiked its key interest rate by 300 bps, more than the US Fed. Edmonton and Calgary will return to pre-pandemic affordability levels by late 2024, but Toronto, Montreal, and Vancouver will take longer due to housing price hikes. Toronto and Vancouver home prices averaged above $800K in September, according to CREA.
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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