Canada home prices to fall almost 6% in 2023, CREA forecasts

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National home sales rose 1.3 percent in December from November. National home sales rose 1.3 percent in December from November. Photo by Mike Hensen/The London Free Press/Postmedia Network

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According to a new forecast by the Canadian Real Estate Association, the median price of homes sold in Canada will fall 5.9 percent annually to $662,103 in 2023, but will recover slightly in 2024.

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CREA expects average prices to fall to $662,103 in 2023, but to recover 3.5 percent to $685,056 in 2024.

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Rising interest rates and a home shortage in Canada continue to pose challenges for prospective homebuyers and have resulted in lower levels of activity compared to early 2022.

“The real estate market story of 2022 was about high inflation and rising interest rates. The 2023 market will depend on the timing and extent to which these factors move back in the other direction,” said Shaun Cathcart, CREA’s senior economist, in the report. “Demand for housing continues to grow and supply remains the biggest problem across the spectrum. Whether that impacts the rental market in 2023 or moves back into ownership depends on how quickly the Bank of Canada can get inflation under control and start turning borrowing costs back down.”

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Christopher Alexander, president of RE/MAX Canada, believes national home sales will see a “rough start to the year” because “inventory levels are a concern.”

“What’s really worrying is the inventory levels that we’re seeing, which is very, very interesting because never before has a path towards a potential recession not coincided with a large surge in housing stock. It’s actually run down,” Alexander said in an interview.

According to CREA’s forecast, 495,858 transactions are expected to take place through Canadian MLS systems in 2023, down 0.5 percent from 2022.

Nationwide home sales are expected to increase by 10.2 percent in 2024 as markets bet on signs of recovery, but that would still be below 2020 and 2021 figures.

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Alexander added that despite the perception that the market is unfavorable for sellers, buyers won’t stay on the sidelines forever.

“There will come a point where people won’t be able to put their plans on hold or they will see buying as a more affordable option over renting because the rents are so high,” Alexander said. “Despite higher mortgage rates, the monthly payments are more attractive compared to renting, so I think we’re going to see a shift from renting to buying somewhere towards the end of spring this year.”

For Cathcart, 2023 looks like a “turnaround year, but not a recovery year.”

“We’re going to stop the bleeding and start moving back up,” he said in an interview. “We’re hoping that a lot of these measures will stabilize in the housing market and I think that’s going to put some people off the sidelines – but in terms of going back to a normal market where there’s a lot of first-time home buyers, I think that rates need to be lower and they won’t be lower until 2024.”

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Across Canada, home prices remain mixed, with more expensive markets like British Columbia and Ontario cooling off. Meanwhile, data from CREA shows that house prices have been much more stable in Alberta, Saskatchewan and Newfoundland and Labrador, while Quebec and the Maritime provinces are somewhere in between.

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Regardless of whether the expected demand for living space occurs in 2023 or 2024, the demand for supply will come. Alexander doesn’t think we have what it takes to meet the demand.

“We don’t have the resources to keep up with that demand, so we really need faster development and incentives for people to move,” Alexander said. “There are just so many deterrents for the average homeowner, especially when you live in Southern Ontario with such a high property transfer tax and limited product selection.”

“There’s just no real incentive for people to move,” Alexander said.

CREA also released figures for December 2022 showing that the nationwide average monthly home price ended the year up 12 percent at $626,318. The MLS Home Price Index is down 7.5 percent from December 2021.

National home sales are up 1.3 percent month-on-month.

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