If you are a homeowner or a prospective buyer in Canada, you might be wondering what the future holds for the housing market. Will prices continue to fall or will they rebound? Will interest rates rise or stay low? Will demand outstrip supply or will new listings increase? These are some of the questions that many Canadians are asking as they face uncertainty and volatility in the real estate sector.
Will the Canada Housing Market Crash in 2023
The Canadian housing market has seen a lot of turbulence in 2023, following a record-breaking year in 2021. According to the Canadian Real Estate Association (CREA), national home sales are predicted to decline by 1.1 percent in 2023, while the national average home price is expected to drop by 4.8 percent to $670,389.
The main drivers of this slowdown were the rising interest rates, the cooling of demand, and the tightening of mortgage rules. The Bank of Canada raised its overnight rate five times since July 2022, from 0.25 percent to 1.25 percent, making borrowing more expensive and reducing affordability for many buyers.
The demand for housing also softened as some buyers decided to wait on the sidelines for more clarity and stability in the market. Moreover, the federal government introduced a new stress test for uninsured mortgages in June 2022, requiring borrowers to qualify at a higher rate than their contract rate or the Bank of Canada's five-year benchmark rate, whichever is higher.
The impact of these factors varied across different regions and segments of the market. Some areas, such as B.C.'s Lower Mainland and the Greater Toronto Area, saw strong price growth in the first quarter of 2023, driven by low inventory and high demand for detached homes and condos.
However, other areas, such as Alberta and Saskatchewan, experienced price declines due to weak economic conditions and an oversupply of housing. The market also diverged between urban and rural areas, as well as between different types of properties. The pandemic-induced shift to remote work and online learning boosted the demand for larger homes with more space and amenities in less dense areas while reducing the appeal of smaller units in central locations.
Will the Canadian Housing Market Crash in 2024
Looking ahead to 2024, most experts and analysts expect the Canadian housing market to recover gradually as interest rates stabilize and demand returns. CREA forecasts that national home sales will rise by 13.9 percent to 561,090 units in 2024, while the national average home price will increase by 4.7 percent to $702,200.
The main reasons for this optimism are the improving economic outlook and the pent-up demand from buyers who delayed their purchases in 2023.
According to GlobalData, Canada's real GDP growth rate is expected to decrease from 3.7% in 2022 to 1.4% in 2023 and 0.9% in 2024. Trading Economics projects the GDP growth rate to trend around 0.50 percent in 2024 and 1.00 percent in 2025. The Bank of Canada expects inflation to fall to about 3% in late 2023, and then return to 2% in 2024.
TD Economics forecasts the unemployment rate to peak at 4.5% in Q4-2024, before gradually moving back to its long-run average of 4% by early-2026. The demand for housing is also likely to rebound as buyers regain confidence and take advantage of lower prices and favorable mortgage rates.
However, there are also some risks and challenges that could affect the housing market in 2024 and beyond. One of them is the worsening housing supply issue that Canada faces across the entire continuum, from rental units to new homes to existing homes.
New listings have been dropping fast and are currently at 20-year lows, creating a severe imbalance between supply and demand that could push prices higher and erode affordability further.
Another risk is the possibility of another wave of COVID-19 cases or variants that could trigger new lockdowns and restrictions, disrupting economic activity and consumer confidence. A third risk is the uncertainty around global economic conditions and geopolitical tensions that could affect trade, investment, immigration, and tourism.
Final Thoughts on the Future Outlook
The Canadian housing market has been through a lot of ups and downs in recent years, influenced by various factors such as interest rates, mortgage rules, pandemic effects, economic trends, and consumer preferences.
The outlook for 2024 is cautiously optimistic, with expectations of a gradual recovery in sales and prices as conditions improve. However, there are also some potential pitfalls that could derail this scenario, such as supply shortages, health crises, or external shocks.
If you are planning to buy or sell a home in 2024, it is important to stay informed and prepared for any changes in the market. You should also consult a professional mortgage broker or real estate agent who can help you find the best deal and navigate the complex process of financing and closing a transaction.