Home sales and prices in Canada forecast to drop in 2023

The Canadian Real Estate Association (CREA) is forecasting home sales in Canada and average prices will decline in 2023 but then recover in 2024.

In a report released Monday, the association said 495,858 properties are forecast to trade hands via Canadian MLS systems in 2023, a 0.5 per cent decline from 2022. The national average home price is forecast to decline 5.9 per cent on an annual basis to $662,103 in 2023.

“It’s important to note that based on the monthly data under the surface, that decline has already happened over the course in 2022; however, the record setting start to that year will be reflected as a decline this year as prices are not expected to be
anywhere near those record levels in 2023,” said CREA.

August de Richelieu

National home sales are forecast to rise by 10.2 per cent to 546,625 units in 2024 as markets continue to return to normal.
This would still be below the 2020 and 2021 figures. The national average home price is forecast to recover by a
moderate 3.5 per cent from 2023 to 2024 to around $685,056, below 2022 but back on par with 2021, it said.

“National home sales have been more or less stable since the summer, suggesting the downward adjustment to sales
activity from rising interest rates and high uncertainty may be in the rear-view mirror. Home prices remain mixed across Canada. With significantly higher borrowing costs, it’s not surprising prices have mostly cooled from their peaks in more expensive markets within Ontario and British Columbia. Prices have been holding up much better in Alberta, Saskatchewan and Newfoundland and Labrador, with Quebec and the Maritime provinces landing somewhere in between,” said CREA.

“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. With the shock from the Bank of Canada’s efforts to control inflation fading, and uncertainty about the path for housing markets and where borrowing costs will ultimately land also likely to wind down over the next few months,
the theme of our 2023 forecast is not recovery, but the start of a turnaround. It will likely remain quite difficult for many first-time buyers to enter the housing market until mortgage rates are lower than they are today. That being said, some buyers are expected to come off the sidelines once they have more certainty rates have topped out. Others will likely find 2023 the first opportunity in some time where they’re not having to compete with multiple offers.”

In another report also released Monday, CREA said home sales edged up by 1.3 per cent between November
and December 2022. But the number of transactions in December came in 39.1 per cent below a near-record for that month last year.

“In 2022, we saw one of the biggest single-year shifts on record in Canadian housing activity, from record highs last winter to just below the 10-year average to end the year,” said Jill Oudil, Chair of CREA. “That said, the market’s adjustment to higher rates may be mostly in the rear-view mirror at this point. That could start to bring buyers back off the sidelines this spring.”

“The housing market story of 2022 was about high inflation and rising interest rates. The 2023 market will depend on the
timing and extent those factors move back in the other direction,” said Shaun Cathcart, CREA’s Senior Economist. “Demand for housing continues to grow and supply remains the biggest issue across the entire spectrum. Whether that plays out in the rental market in 2023 or shifts back over into the ownership space is a matter of how quickly the Bank of Canada can get
inflation under control and starts turning the dial back down on borrowing costs.”

The Aggregate Composite MLS Home Price Index (HPI) edged down 1.6 per cent on a month-over-month basis in December,
continuing the trend that began last spring, said CREA. It is now  about 13 per cent below its peak level.

The national average home price was $626,318 in December, down 12 per cent from the same month last
year. The national average price is heavily influenced by sales in Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive housing markets. Excluding these two markets from the calculation cuts almost $118,000 from the national average price, added CREA.

“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. But this past December was particularly slow, for both sales and—importantly—new listings,” said Doug Porter, Chief Economist, BMO Economics. “The latter has helped slightly firm what had been a soggy market balance, and reinforces the point that there is little forced selling underway, helping provide some support for prices.

“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? 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. We look for double-digit annual declines for all of 2023 in sales and prices, on an average annual basis.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)