The Canadian Real Estate Association expects home sales to edge down less than 1% and prices to fall almost 6% from 2022, which ended with the market in a sluggish state as sellers and buyers sat on the sidelines.
The association’s forecast amounts to 495,858 properties changing hands in 2023 and is based on sales “more or less” stabilizing since the summer, “suggesting the downward adjustment to sales activity from rising interest rates and high uncertainty may be in the rear-view mirror.”
The same factors will also put a damper on the average home price, which CREA said will reach $662,103 in 2023.
For 2024, CREA expects home sales to rise by 10.2% as markets continue to return to normal, while it expects the national average home price to gain 3.5% from 2023 to 2024 to around $685,056 — below 2022 prices but back on par with 2021.
The predictions come after a topsy turvy year for Canadian housing, which began with homes in heated markets like Vancouver and Toronto changing hands at a rapid pace as interest rates remained low.
However, spring brought rate hikes that increasingly put a damper on sales, as sellers took their homes off the market to wait for prices to rise again and buyers decided their mortgage payments would be too hefty to make a purchase.
“Interest rates are just too high,” said Michelle Gilbert, a Toronto broker with Sage Real Estate Limited.
“A lot of the people I am working with are people that have to move, so people that are either relocating … or people that are upgrading their home.”
Investors have mostly vanished as have first-time homebuyers, with home sales CREA reported for December 2022 dropping 39.1% compared with a year earlier.
Last month’s home sales were up 1.3% on a month-over-month basis.
BMO Capital Markets chief economist Doug Porter took the numbers as a sign that there is little forced selling underway, helping to support prices.
However, he cautioned against making predictions based on the month.
“Housing activity tends to be at its quietest in December and January in any event, so it’s unwise to read too much into trends around the turn of the year,” he wrote in a note to investors.
“But this past December was particularly slow, for both sales and — importantly — new listings.”
It also marked a further depression of prices. The actual national average home price in December was $626,318, down 12% from the final month of 2021.
CREA found Ontario and B.C.’s December pricing shows the markets have mostly cooled from the peaks because of higher borrowing costs.
Prices in Alberta, Saskatchewan and Newfoundland and Labrador have been holding up much better, and Quebec and the Maritime provinces are landing somewhere in between.
While prices in most markets have declined from a short-lived sharp peak in early 2022, they remain well above where they were in the summer of 2020, CREA added.
“As we look ahead to the crucial spring selling season, the all-important question is who will emerge from hibernation in greater force — buyers or sellers?” Porter said.
“We suspect that the market will still be digesting the rapid run-up in interest rates, and that buyers will be more reluctant to re-emerge, keeping prices under pressure for some time yet.”
Gilbert agrees, predicting 2023 will be the year many sellers break the standoff.
“We’re going to see sellers come out of hiding because I don’t think they want to wait until the market has absolutely bottomed,” she said.
“I think it could be a spring market.”
However, she warned buyers will have less incentive to get back into the market unless interest rate hikes subside or the benchmark starts to decline. Economists have been predicting the Bank of Canada will make at least one more rate increase later this month to counter stubbornly high inflation.
“It’s not to say that it’s dark and gloomy, but I think everyone’s a little cautious,” she said.
“If the Bank of Canada does stop the tightening, I think there’ll be a lot more optimism … but for now, there’s nothing to be optimistic about.”