After years of Canadian housing market frenzy during the COVID-19 pandemic, 2022 has seen a reversal across much of the industry as Bank of Canada interest rate hikes cool the residential real estate sector in cities from coast to coast.
Most economists and pundits who spoke to PKBNEWS say they expect this cooling to continue into 2023, citing prohibitive mortgage rates, low inventory in the market and uncertainty about where the Bank of Canada interest rate cycle will finally peak.
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But where will price declines in the Canadian housing sector bottom out? And will all markets and property classes be affected equally?
Here are the real estate trends and markets to watch in 2023, according to industry experts.
Where will prices bottom out?
The latest available data from the Canadian Real Estate Association (CREA) shows that, on a seasonally adjusted basis, home prices in Canada have fallen 19% from their peak in February to November, when the average selling price was $636,838.
When will the bottom come? RBC Deputy Chief Economist Robert Hogue said in a Dec. 19 note that he believed with the slowing decline in sales and home prices, there were “early signs that a correction is approaching. of its final phase.
He said prices could eventually bottom out in “early 2023”, but warned the timing would vary from market to market.
Hogue suggested that this low would coincide with the Bank of Canada stabilizing its benchmark interest rate – the central bank signaled in December that it could be close to the end of its upward cycle – and that for those looking to break into the market, this may be where affordability is best in the year for potential buyers.
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Although spring may mark a low point for prices, Canadian brokerages do not expect significant changes between 2022 and 2023.
Re/Max Canada said in its 2023 housing outlook that the overall price of a home is expected to drop 3.3% over the year, while Royal LePage’s annual survey forecasts a price drop of only 1%.
Chris Alexander, president of Re/Max Canada, told PKBNEWS in late November that Bank of Canada interest rates are the “big wild card” that will determine when buyers and sellers will be comfortable for return to the market.
Some housing markets could see rising prices
Some Ontario cities are particularly vulnerable as 2023 Re/Max projects approach, with larger price drops predicted for the Greater Toronto Area (11.8% lower), Barrie (15% lower less) and Durham (10% less).
Parts of British Columbia are also expected to see declines, such as Greater Vancouver (down 5%), Kelowna (down 10%) and Nanaimo (also down 10%).
But some pockets of the country are set to experience growth in 2023, according to Re/Max forecasts.
Re/Max expects prices to rise in cities like Halifax (up 8%), Calgary (up 7%), Ottawa and Kingston, Ontario. (up 4%), St. John’s, NL (up 4%) and Saskatoon (up 3%).
Corinne Lyall, owner and broker of Royal LePage Benchmark in Calgary, says one of the reasons the city should do well in 2023 is because it hasn’t seen the dramatic rise in prices during the pandemic that markets in British Columbia and Ontario did.
As Calgary has grown only modestly during this time, it has become a more affordable option for people originally living in the more expensive provinces who can now work from anywhere and can buy bigger homes for less money, says Lyall.
The benchmark cost of a single-family home in Calgary in November was $630,236, according to the local real estate board, nearly a third of the $1.86 million price of the benchmark single-family home in Vancouver.
“Our price is so much lower for a big city,” Lyall says. “You can buy twice as much house here.”
As a period of economic uncertainty approaches, the Alberta market is also being boosted by recent strength in the oil and gas sector, Lyall adds. She believes the backdrop of the traditional energy industry, spurred by Calgary’s efforts to diversify into a technology hub in recent years, makes the city an attractive prospect for Canadians looking to relocate.
“I think people still see a place of opportunity here,” she says.
Condos, urban centers should hold up well
Another part of the Canadian market that is expected to hold up in 2023 are condos and properties in urban cores, according to experts who spoke to PKBNEWS.
John Pasalis, president of Realosophy Realty in Toronto, says that, like in Calgary, downtown condos and properties have not seen major price inflation during the pandemic and therefore need to decline further as the market cools down.
Additionally, returning to the office amid a lifting of COVID-19 restrictions is reversing migration flows from the early days of the pandemic, when remote working enabled many to afford larger homes in neighborhoods. suburban on the outskirts of the city and in more rural areas.
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“People thought this urban exodus during COVID was going to be permanent and no one would want to live downtown,” says Pasalis. “Well, that’s not happening. People are returning to town. They want to be a little closer to downtown. So I suspect the core market will be a bit busier. »
Nasma Ali, a broker and founder of OneGroup in Toronto, says with borrowing costs at their highest levels in years, cheaper condos will be especially “desirable” in otherwise expensive markets.
“For a first-time home buyer in Toronto, the most affordable asset class is a condo,” she says.
In Calgary, Lyall says the push for condos is already on. Three years ago, she says, the condo market was at eight months of inventory, but as we approach 2023, it’s already dropped to two months.
“It’s the fastest growing market segment in terms of price right now and in terms of sales, it’s leading the way and we haven’t seen that in a long time.”
Pre-construction buyers show ‘some distress’
The pain of higher interest rates could hit the pre-construction market particularly hard in 2023, some experts warn.
Ali says for buyers who put money down on a home in 2020, when interest rates were low, the bar to qualify for a mortgage is much higher after rapid Bank of Canada hikes in 2022. Some of these buyers locked in their purchase at high pandemic prices and did not benefit from the recent cooling, she notes, and are now forced to pay peak prices at much higher interest rates. students.
With the completion of these homes in the coming year, these buyers will be forced into difficult positions, Ali said. Some might be forced to find extra money to cover a home that hasn’t been appraised for the mortgage they needed, or they might not be able to pay the monthly mortgage on the property with the higher rates today, she explains.
Those buyers may have to cede their sale if they can or sell at a loss, Ali says.
“If the dominoes fall, that usually means we’re finally going to see a lot of listings hitting the market,” she says.
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Pasalis agrees that the pre-construction market looks vulnerable as we approach 2023.
Potential buyers might even strike a deal if an investor is desperate to unload their pre-construction condo, he says.
“We’re starting to see some distress among pre-construction condo investors,” he says.
“There could be opportunities as a buyer to get some value because that’s the segment of the condo market where there’s a bit more pressure.”
However, these units aren’t listed on traditional multi-listing services, so Pasalis says anyone wanting to pick up a unit as it’s completed will need to search a bit more carefully or go straight to the source when their New Year’s house hunts. .
– with files from Anne Gaviola and Rachel Gilmore of PKBNEWS