Last Updated: August 30, 2023
The Bank of Canada raised its policy rate to 5.00% in July. In the past quarter, there have been significant shifts in the Canadian housing market and the mortgage industry. During this period of change, certain events have created notable impacts:
According to the CMHC Housing market outlook for 2023, housing prices are predicted to begin rising in 2024 due to increased demand and ongoing supply shortages. For the entirety of 2023, there is an expectation of year-over-year declines in both home prices and sales. This is mainly due to the negative effects of higher mortgage rates, slower income and employment growth on people’s ability to buy a home. Additionally, a mild recession in 2023 is possible, and credit growth from Canadian financial institutions may be restricted, contributing to lower growth.
In the base-case scenario, price declines are projected to conclude during 2023, but the average price for the year is expected to be below 2022 levels. Recovery in prices is anticipated as economic growth picks up and immigration increases. However, the shortage of available housing will still play a role in driving up prices and affecting affordability.
Housing starts will experience a significant decline in 2023 due to various factors, including labour shortages, higher construction material costs, and increased project financing costs due to rising interest rates. This will worsen existing housing shortages, particularly in supply-constrained markets like Vancouver and Toronto.
From 2023 to 2024 onwards, there is a predicted increase in annual housing prices, sales and housing starts. Inflation should be back to the 2% target by the end of the forecast period and mortgage rates will slowly decline from 2023 levels. These changes along with increased growth in income and employment, will support housing demand and supply.
Affordability challenges in homeownership will increase demand for rental units and this demand will be added to rental demand coming from high immigration levels. Rising rental demand combined with limited supply will create tighter conditions in an already strained market and will lead to higher rent costs.
Home sales began strongly in April 2023 as buyers responded to expectations of increasing interest rates and lower property values. However, uncertainty has returned to the housing market after the Bank of Canada raised rates in June and July.
Even before the rate hikes, the sales surge started to slow down. The largest increase in sales was in April, followed by smaller gains in May and June. This was because new property listings were at a 20-year low, leading to price increases in those months. New listings are now catching up with sales, but this isn’t likely to result in significant activity growth since some buyers may wait for more signals from the Bank of Canada before making decisions. There’s also a growing consensus that interest rates will remain high until at least 2024.
CREA’s revised forecast predicts that:
According to the RE/MAX Canadian Housing Market Outlook for 2023, they predict that the national average price is expected to decrease by 3.3%, which makes it an opportune time for buyers to get into the real estate market. Sales are expected to increase by 34% of the markets analyzed and 55% of regions will most likely shift to a balanced or buyer’s market in 2023. These estimates are based on surveys of brokers and agents of RE/MAX across the nation.
According to Desjardin’s Canadian Residential Real Estate Outlook, Canada’s housing market has experienced a remarkable resurgence since March 2023. These recent gains are likely to persist, which will continue to challenge affordability for home buyers.
Housing demand is strong in Canada and is driven by multiple factors such as a rapidly growing population, a tight labor market, and accumulated savings from the pandemic period. However, the impact of higher interest rates is expected to counterbalance some of these factors. New housing supply is expected to cool somewhat going forward, providing further support to prices.
Sales activity has been strong in British Columbia and Ontario since the start of 2023, which has driven national prices up. These provinces are also primary destinations for international immigrants. However, due to affordability concerns, younger residents are seeking housing options in farther locations, with Alberta being a key destination. Other Prairie provinces are benefiting from robust economic growth and improved affordability, as well as the Atlantic provinces. While Quebec’s housing market hasn’t experienced the same surge in activity as larger provinces, it faces challenges in new home construction, a trend observed at the national level as well.The 2023 forecasted annual average for existing home sales in Canada is -9.1%, the forecasted annual average home prices in Canada is -1.7% and the forecasted annual average for housing starts (thousands of units) is 218.7%
TD economists expect Canadian home sales to decline in the second half of 2023, which will reverse part of their recent strength. They also anticipate purchases growing at a slower pace (quarter-on-quarter) than previously envisioned in 2024. Due to limited supply and high demand, the Canadian average home price is expected to continue growing in a positive direction during the third quarter. However, a slight decline in prices is anticipated for the fourth quarter.
The number of homes available for resale is still low. In May, new listings were about 16% lower than the average. A cause for the limited supply situation is due to strong job markets and the option to lengthen amortizations have prevented people from being forced to sell their homes. Another possibility is that homes are becoming less affordable which might be discouraging people from upsizing. We will most likely see a near-term bump in listings, as homeowners respond with a lag to this spring’s firming in price conditions. Looking ahead to 2024, there’s an expectation of a more consistent increase in homes available for resale.
[Annual Average Growth, %]
|Provinces||Home Sales||Average Home Prices|
|Newfoundland & Labrador||-7.1||-14.1||10.7||7.1||2.3||2.0|
|Prince Edward Island||-18.1||-12.6||13.2||13.9||-1.8||0.1|
The recent rate hikes by the Bank of Canada have significantly impacted various real estate markets across the country. The number of transitions fell in prominent areas such as Vancouver, the Fraser Valley, Hamilton, Toronto, and Ottawa during the transition from June to July, putting a stop to the unexpectedly robust progress seen during the spring. Price gains moderated considerably in most cases.
The real estate markets in Alberta and Saskatchewan have demonstrated resilience. Calgary, Edmonton, Regina, and Saskatoon continued to see monthly sales advances in July, with sellers maintaining a dominant market position.
With sellers listing more properties for sale across various markets, this ongoing trend has helped rebalance the markets in Ontario and British Columbia, which had experienced tightening conditions during the spring. If this trend persists, it’s expected that price gains will continue to moderate in the coming months.
Signs of cooling activity in some of Canada’s largest real estate markets align with the viewpoint that the spring rebound was premature and is likely to taper off. This cooling is due to high interest rates, ongoing affordability challenges, and a looming recession. RBC economists predict that the projected trajectory for the real estate market will be gradual and uneven, with recovery gaining traction once interest rates begin to decrease, which is expected to happen in 2024.