The Canadian housing market has been experiencing a downturn since March 2022, and the question on everyone’s mind is when will it reach its bottom? However, after a significant decline in the housing market last year, Canada’s housing market appears to be on the road to recovery. The average home price has increased by 8% compared to last month, reaching $662,437, the highest level since June 2022, and all provinces saw their provincial average home price increase compared to last month, according to the data released by the Canadian Real Estate Association (CREA).
However, the national average home price is still down by 19% year-over-year due to the impact of higher Canadian interest rates seen over the past year. Sales during February 2023 are down 40% year-over-year, but there was an increase of 41.6% from last month when Canadian home sales were at a 14-year low.
Canada’s MLS Benchmark Price, which measures the price of a “typical” home in Canada, has increased by 0.2% from last month, reaching $715,400. This is the first time the benchmark price has increased on a monthly basis since March 2022. The rise in home prices and benchmark price may be a sign of the housing market’s recovery, but it’s still too early to tell.
ALSO READ: US Housing Market Predictions
Canada Housing Market Trends & Stats for 2023
The recent report released by the Canadian Real Estate Association (CREA) shows that national home sales were up on a month-over-month basis in February 2023. The Canadian housing market is showing signs of recovery in February 2023, with sales increasing on a month-over-month basis, the market tightening and month-over-month price declines getting smaller. Future sellers are likely biding their time until the optimum time to list and buy something else, which is typically in the spring. With new listings falling considerably and sales moving higher, the market may shift toward a seller's market.
Key Points from the Canadian Housing Report
- National home sales rose 2.3% month-over-month in February.
- Actual (not seasonally adjusted) monthly activity came in 40% below February 2022.
- The number of newly listed properties dropped 7.9% month-over-month.
- The MLS® Home Price Index (HPI) edged down 1.1% month-over-month and was down 15.8% year-over-year.
- The actual (not seasonally adjusted) national average sale price posted an 18.9% year-over-year decline in February.
According to the Canadian Real Estate Association (CREA), home sales in Canada increased by 2.3% from January to February 2023, with the Greater Toronto Area (GTA) and Greater Vancouver leading the gains. The actual number of transactions in February 2023 was 40% lower than the same month in 2022, comparable to the numbers seen in 2018 and 2019. The market is showing signs of recovery and the potential for a more robust market in the spring, with homeowners preparing to list their properties and buyers getting mortgage pre-approvals.
The number of newly listed homes fell by 7.9% in February, led by double-digit declines in several large markets, particularly in Ontario. Future sellers are likely waiting for the optimal time to list and buy something else, which is typically in the spring. With new listings falling considerably and sales moving higher, the sales-to-new listings ratio jumped to 58.4%, the tightest since last April.
There were 4.1 months of inventory on a national basis at the end of February 2023, down from 4.2 months at the end of January, indicating the market is tightening. It is also a full month below its long-term average, indicating the potential for a seller's market. The number of months of inventory is calculated by dividing the number of active listings at the end of the month by the number of sales during that month.
The Aggregate Composite MLS® Home Price Index (HPI) was down 1.1% on a month-over-month basis in February 2023, only about half the decline recorded the month before and the smallest month-over-month drop since last March. The Aggregate Composite MLS® HPI is now 15.8% below its peak level, reached in February 2022. Prices are down from peak levels by more than they are nationally in most parts of Ontario and a few parts of British Columbia, and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina, Saskatoon, and St. John’s stand out as markets where home prices are barely off their peaks.
National Average Home Price:
The actual (not seasonally adjusted) national average home price was $662,437 in February 2023, down 18.9% from the all-time record in February 2022 but up more than $50,000 from its January level resulting from outsized sales increases in the GTA and Greater Vancouver, two of Canada’s most active and expensive housing markets. Excluding these two markets from the calculation cut almost $135,000 from the national average price in February 2023.
Canada Housing Market Forecast: Will it Crash or Not?
The Canadian housing market has been a hot topic lately, with many wondering if it will crash or not. Here's what we predict will happen. The question on everyone’s mind is when will it reach its bottom? According to RBC’s recent economic analysis, the bottom is predicted to happen in Spring 2023. However, this does not mean that the housing correction has run its course. RBC is forecasting a peak-to-trough decline of 15% in home prices across the country, with about half of this decline still to come.
Ontario, British Columbia, and Alberta will experience a peak-to-trough dip of 19%, 16%, and 6%, respectively. It is important to note that this decline only offsets some of the immense home price gains between late 2020 and February 2022. RBC states that “the dramatic swing in the market since March 2022 is a cyclical event marking the transition out of highly unusual circumstances—a global pandemic and exceptionally low-interest rates. Structurally the market is sound.”
The slowdown in home sales nationwide has significantly moderated since the Fall of 2022, mainly because housing activity is already deeply depressed in most markets. This leaves little remaining downside, except for a major economic recession. The housing market recovery will slowly begin later in 2023, especially with affordability issues and the weakened economy holding back prospective homebuyers. The pace of recovery will gradually pick up in 2024 when the economy stabilizes, market inflation softens, and the Bank of Canada begins to trim down its key interest rate imposed in March 2022.
Impact on Buyers and Sellers For buyers, the forecast means that it may be a good time to purchase a home if they have the financial means to do so. With the decline in home prices, buyers will have the opportunity to purchase a home at a more affordable price. However, buyers need to consider their financial situation and whether they can handle the potential increase in mortgage rates when the Bank of Canada begins to trim down its key interest rate in 2024.
For sellers, the forecast means that they may need to adjust their expectations for their home’s selling price. With the decline in home prices, sellers may need to lower their asking price to attract buyers. It is also important to note that the housing market recovery will be slow, and sellers may need to be patient and flexible with their selling strategy.
Here are more insights from the report:
Activity is Quiet, But the Bottom is Near
Home resales have been declining since the market frenzy of 2020, but we believe the market is hitting bottom this spring. Resales are the quietest they've been in years, and we expect a bottom to form in the coming months. While some markets may recover faster than others, the primary reason for the slowdown is the lack of activity, and unless the economy dives, there's little downside left.
Interest Rates are Stabilizing, But Won't Prop Up the Market
The Bank of Canada's rate hiking cycle is on hold, and we don't expect any rate cuts until 2024. This should help stabilize the market, but won't be enough to prop it up. Any downward drift in longer-term bond yields over the next year will be viewed as a positive sign of a turnaround, but the interest rate environment will remain restrictive for a while.
Prices are Expected to Drop Further in the Near Term
Home prices will continue to decline in the coming months, with the national RPS HPI likely to fall another 8% by the third quarter from fourth-quarter levels. Markets in B.C. and Ontario still face the biggest downside risk, with peak-to-trough price forecasts ranging from -19% in Ontario to -5% in Newfoundland and Labrador. Buyers will continue to face affordability challenges, especially in expensive markets like B.C. and Ontario. This means a quick market rebound is unlikely, and affordability issues will stand in the way of a material easing in buyers' budget constraints.
Solid Market Fundamentals Despite the Correction
The market correction since March 2022 is a cyclical event marking the transition out of highly unusual circumstances like a global pandemic and exceptionally low-interest rates. However, structurally the market is sound. Inventories are still historically low, and Canada's population growth is the highest in generations. Booming immigration will continue to fuel demand through the medium term and beyond.
Homebuilding is Key to Long-Term Balance
The recent track record for construction has been underwhelming, and homebuilding needs to ramp up considerably to accommodate the growth in households and address the housing affordability crisis in many Canadian cities. We estimate that at least 270,000 units must be built per year by 2025, but it's unclear whether the construction industry has the capacity to do so in the face of significant labor shortages.
Canadian Provincial Housing Predictions
On a lighter note, the Canadian housing market, much like the human body, has experienced a correction from its pandemic highs. It has been a tough year for the market, but there is a glimmer of hope on the horizon. With falling interest rates, a tight labor market, elevated household savings and heightened immigration, experts expect the market to find a bottom by the end of this year. It's like a phoenix rising from the ashes, ready to take flight once again.
A new report from Desjardins‘ economics team says that the Canadian housing market has experienced a significant correction from its peak during the pandemic. Existing home sales have dropped by over 38% from their peak in February 2022, and new listings have also decreased by almost 20% over the same period. The average home price has fallen by nearly 20%, while the benchmark home price, which adjusts for market composition, has decreased by approximately 14%.
This decline in sales, but relatively steady listings, has moved the national housing market into a more balanced territory compared to the start of last year when it leaned significantly in favor of sellers. Looking ahead, they predict that the Canadian housing market will hit its bottom by the end of the year. The Bank of Canada's recent pivot suggests that the central bank is likely to remain on hold for the foreseeable future and may even begin cutting rates before the year is out.
However, high-interest rates will continue to affect housing market activity, while the effects of previous rate hikes have yet to be fully felt in the economy. The Canadian housing market's correction may have a significant impact on Canadians, including a potential recession in 2023. Despite this, experts remain optimistic that the housing market will eventually recover.
While the national housing market is important, it's important to note that all real estate is local. Each province has its unique economic developments, and this can lead to widely varying outcomes in the housing market. For example, Ontario, Canada's most populous province, has borne the brunt of the housing market correction so far. However, it continues to attract immigrants, which should help underpin the residential real estate rebound as interest rates continue to decline.
British Columbia, which also relies heavily on the real estate sector, finds itself in a similar situation to Ontario. However, it too continues to welcome large numbers of newcomers, which should help drive the residential real estate rebound.
Quebec, on the other hand, is expected to continue to deteriorate in the coming months. Despite resumed immigration after the pandemic hiatus, it hasn't been enough to spur new construction due to high-interest rates, leaving developers struggling to turn a profit.
One of the biggest surprises of 2022 was the resiliency of the housing markets of the Maritime provinces. Despite seeing the largest run-up in prices in Canada during the pandemic, prices have yet to adjust as much as they have in Central Canada or British Columbia. However, we may be seeing the early stages of a reversal in that trend, as a push from pandemic-related migration has now subsided.
The Prairie provinces, on the other hand, are expected to be at the top of the growth leaderboard in 2023. Commodity-driven growth is characterizing their outlook, with high commodity prices and an influx of newcomers to Canada and Canadians from other provinces looking for employment opportunities and more affordable housing options.
Overall, Canada's housing market is on the path to recovery. We expect sales activity to gradually grind lower through 2023 before rebounding in the second half of the year and into 2024. Falling borrowing costs 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 once again.
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This article shouldn't be used to make real estate or financial decisions. Some of this article's information came from referenced websites. Norada Real Estate Investments provides no express or implied claims, warranties, or guarantees that the material is accurate, reliable, or current. All information should be validated using the below references. Norada Real Estate Investments does not predict the future Canadian housing market. Buying a property needs research, planning, and budgeting. Not all investments are good. Always do research and consult a real estate investment counselor.