Royal LePage sees 1% drop in 2023 home prices

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Millicent Wong
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Real estate agents are forecasting a modest 1% fall in house prices in 2023 due to supply constraints

The median price for a detached single-family home will also fall by two percent to $781,256, Royal LePage's 2023 Market Survey Forecast predicts. The median price for a detached single-family home will also fall by two percent to $781,256, Royal LePage’s 2023 Market Survey Forecast predicts. Photo by Jonathan Hayward/The Canadian Press/File

According to the latest forecast from Royal LePage, total home prices for 2023 will be slightly down for the year.

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The real estate company’s 2023 market survey forecast, to be released Tuesday, calls for a one percent decline in overall prices to $765,171 through the fourth quarter of 2023, a decline that could be worse given the impact of rising interest rates, falling affordability and a housing shortage. The median price for a detached single-family home is also expected to fall 2 percent to $781,256, while the median condo price is expected to increase 1 percent to $568,933.

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“After nearly two years of record price increases, fueled by a precipitous rise in household savings, very low borrowing costs and an overwhelming desire for more space during the COVID-19 pandemic, the hectic housing market came to an end and the inevitable downtrend or market correction began, compounded by rapidly rising lending rates,” Royal LePage CEO Phil Soper said in the report. “In a time marked by the unusual, this correction does not follow historical patterns. While home trade volume has declined sharply, home prices have held up with relatively modest declines. We see this as a continuing trend.”

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In an interview, Soper said the supply of houses for sale must exceed demand for prices to drop significantly. However, Canada does not have the labor capacity to build the 3.5 million new homes needed to provide affordable housing by 2030, according to a report by the Canada Mortgage and Housing Corporation released in October.

“Canada is grappling with an acute, long-term housing shortage,” the report said. “Organic demand is supported by the current life cycle of our large millennial demographic and a record number of new immigrants to accommodate. Due to smaller household sizes, more housing units per capita are needed than before. There is growing pent-up demand from buyers who can transact in these turbulent times but have chosen not to.”

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Low unemployment and a large number of vacancies mean few families are likely to be forced to sell their homes, contributing to the lack of homes on the market.

This is in contrast to a traditional recessionary environment where job losses lead to mortgage defaults and foreclosures, causing the market to be flooded with new listings. However, in Canada’s post-pandemic era, most people have kept their jobs.

“In fact, they’ve seen wages and salaries go up,” Soper said. “We have a tightly managed national mortgage portfolio with historically low delinquency rates, backed by homeowners who have had to qualify for credit under the rigorous federal stress test over the past five years. We just don’t see the factors that would lead to a big drop in home values.”

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Results are expected to vary across the country. For example, Calgary, Edmonton, and Halifax are all likely to post modest gains in 2023 due to their relative affordability.

Soper believes potential buyers sitting on the sidelines have not been forced to leave the market.

“While some of these families have been priced out by rising lending rates for now, we believe some have voluntarily adopted a wait-and-see attitude, not wanting to buy a property today that may be worth less tomorrow. But people in their 30s, 40s and 50s only know of a Canada where house prices are rising faster than incomes,” he said. “When interest rates appear to have stabilized, these buyers can re-enter the market and expect a return to escalating home values.”

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Buyers re-entering the real estate market in search of discounts may be disappointed, said Karen Yolevski, Royal LePage’s chief operating officer.

“As people move away from the sidelines, or as we see interest rates stabilizing for a few months, we will see increasing supply problems. We already have a problem,” Yolevski said in an interview. “Buyers returning to the market will exacerbate this problem as more people look for homes for sale, increasing competition and could put prices under pressure again.”

Canada’s aggregate home price is expected to be 12 percent lower in the first quarter of 2023 compared to the same quarter of 2022. Home prices are expected to post modest quarterly gains in the third and fourth quarters of 2023. However, the totals remain lower than the same periods in 2022.

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