Despite a
strong start to the year, real estate in 2022 was largely defined by a lack of
affordability, spurred by one of the most polarizing interest rate hike cycles
in Bank of Canada (BoC) history. As a result, many buyers and sellers found
themselves staunchly sidelined, even as home price began to come down.
But with the
new year comes renewed hope and a chance for Canadians to renter the real
estate market… albeit with adjusted expectations.
So what’s in
store for real estate in 2023? Experts are forecasting a lot of the same, but
also some reprieve on the horizon.
Prices
May Finally Bottom Out
Canadian
housing markets were in correction mode for the better part of 2022, and while
the worst of the correction seems to be in the review, many major markets are
still seeing downturned conditions. With that said, prices are yet to come down
in a meaningful way, dropping just 0.98% month over month in November,
according to data from the Canadian Real Estate Association (CREA)
This kind of
gradual decline is expected to persist into 2023.
An affordability
report by RBC’s assistant chief economist Robert Hogue, published in December, forecasted
that the national benchmark price will fall 14% from its 2022 peak by spring.
Hogue further stipulated, “it will likely take years to fully reverse the
tremendous deterioration that took place since 2021.”
Hogue also
emphasized that price depreciation will vary from market to market, saying that
the more significant corrections in average home prices will be among
properties in smaller markets, such as markets across the Prairie provinces,
while affordability will continue to be “overstretched” in BC and Ontario.
BoC Will
End its Rate Hike Cycle
December
market the BoC’s seventh consecutive interest rate increase, however, the hike
cycle has done little to bring down inflation. Canada’s inflation rate was
unflinching in November, falling just 0.1% from the month prior.
With inflation
remaining stubborn, many experts are convinced that we haven’t seen the last of
interest rate hikes – the next rate decision is scheduled for January 25 and
the consensus seems to be an increase of 25 basis points – however, they also
agree there is an end in sight.
Moshe Lande,
Senior Economics Lecturer at Concordia University, told STOREYS in a previous
interview that he anticipates the Bank will have “more of a steady hand” in the
year to come.
“They do
need to take a pause at some point,” he said. “They need to at least sit out
one meeting and just say, ‘we want to see what happens’, whether that comes in
the first meeting or the second meeting of 2023.”
As for what
this will mean for prospective buyers – Jill Oudil, Chair of CREA, stated in a
recent report that it could actually create favourable conditions.
“…while the
interest rate situation facing buyers is unlikely to improve over the first half
of 2023, it is more likely to remain the same,” she said. “However, it may also
be the first spring market in a number of years where buyers have a shot at not
being out-competed for properties that catch their eye.”
Mortgage
Carriers Will Feel the Rate Pain
Regardless
of the BoC’s next moves, mortgage carriers will be in a tight spot in 2023.
In an
interview from December, Ron Butler of Butler Mortgage talked to STOREYS about
the detriment of further interest rate hikes to existing mortgage carriers,
even if the next increase are relatively moderate.
“The house
inflation is 10 times, therefore the mortgage inflation is 10 times,” he said. “People
who have a primary-based mortgage product or HELOC are going to have
difficulties with the continued escalation of their payments.”
The
situation won’t be much better for those who are mortgage shopping. With
runaway inflation and high rates bleeding into 2023, both variable and
fixed-rate mortgage carriers are expected to remain unattractive for the rest
of the year, says Butler.
Immigration
Will Heat Up Housing Demand
In 2022,
Canada welcomed a record-breaking number of new permanent residents – 431,645,
according to an announcement released earlier today. That figure trumped a
previous high of 405,000 new permanent residents in 2021.
Moreover,
the federal government’s latest immigration targets are the loftiest in
Canadian history. Under the 2023-2025 Immigration Levels Plan, Canada will
welcome 465,000 new permanent residents in 2023, 485,000 in 2024 and 500,000 in
2025 for a total of 1.4M new permanent residents over the next three years.
With the
government upping the ante on immigration housing demand is bound to intensify,
injecting the market with urgency that was lacking in 2022 due to the high cost
of borrowing. And with new housing supply being offset by lofty development costs
and existing inventory remaining scarce, Canadians, new and existing, will
continue to turn to the rental market, compounding the affordability challenges
already facing the sector.
Written
By: Zakiya Kassam
Source
By: STOREYS