Canada’s housing market hasn’t hit bottom yet, says CMHC

By
Millicent Wong
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financial post

  1. property

Prices are expected to fall further by the middle of the year

Released April 27, 2023 • Last updated 1 hour ago • 2 minutes read

Canadian home prices will continue to fall through mid-2023, according to the latest housing market forecasts from Canada Mortgage and Housing Corporation. Canadian home prices will continue to fall through mid-2023, according to the latest housing market forecasts from Canada Mortgage and Housing Corporation. Photo by Jeff Haynes/Getty Images

Canadian home prices will continue to fall through mid-2023 before bottoming out and rising again into 2025, according to the latest housing market outlook from Canada Mortgage and Housing Corporation.

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The national housing agency’s annual forecast, released on April 27, predicts that while the average house price for 2023 will be below last year’s levels, a shortage of supply and rising demand will compound the country’s housing affordability challenges.

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The CMHC is forecasting a fall in housing starts due to higher construction and borrowing costs and projects new supply to remain below 2021 and 2022 levels before some recovery in 2024 and 2025.

“With demand for housing still significantly exceeding the supply of new housing, affordability challenges for owners and renters will remain,” said chief economist Bob Dugan.

Higher mortgage rates and still-elevated price levels will make home ownership less affordable even if prices have fallen, he said.

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In an interview, Dugan said the housing authority forecast that the Bank of Canada would keep interest rates stable for the rest of the year and gradually lower them in 2024. The central bank left its interest rate unchanged at 4.5 percent on April 12.

“What has been done so far in terms of rate hikes will slow the economy enough to get rid of excess demand and we will see inflation gradually move lower,” he said.

Once the central bank finally starts cutting interest rates next year, stable and declining interest rates will lead to an improvement in housing demand and a gradual increase in home sales, even though supply in the market is very tight, Dugan added.

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A lack of affordability will persist despite a slowdown in inflation and a gradual fall in mortgage rates, both of which are expected to support demand for housing, he said.

As a result, many households will be forced to remain in the rental market, which is already facing significant supply shortages, particularly in Toronto, Vancouver and Montreal, the CMHC said.

It also said the big falls in housing starts will be more severe in 2023 Ontario, British Columbia and Quebeccompared to other regions.

“This is where we see the biggest challenges in terms of housing starts over the next year or so,” Dugan said. “So what worries us is that it’s moving in the wrong direction to restore affordability.”

  1. The CMHC said the seasonally adjusted annual rate of housing starts fell to 213,865 units in March from 240,927 units in February.

    Higher interest rates hit housing construction

  2. The ban on overseas homebuyers has been amended to ease some restrictions on purchases.

    Ottawa amends ‘illogical’ ban on overseas homebuyers

  3. none

    Canadians flocked to adjustable rate mortgages ahead of rate hikes

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He said the CMHC expects about two million launches to be built by 2030, while Canada needs another three and a half million launches to actually restore housing affordability.

“I’m less optimistic because the environment for housing starts is pretty challenging right now,” Dugan said, explaining that construction health is being impacted by high interest rates, labor shortages and high material costs.

On demand, he said Canada has bottomed out and will see stabilization in housing demand and prices in the second quarter, with demand growth picking up from there thanks to stabilizing interest rates.

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