Housing market forecast for 2023

BY JAY BRIJPAUL

Mortgage rates soared last year. A few more rate hikes are possible this year. Financially, the load is heavier for homeowners—especially those who are on variable mortgage rates. Will the real estate market collapse? Will home prices plummet? Let’s look at the forecast.

Currently, there are not as many homes on the market. When supply is low, demand is high. The Canadian Real Estate Association (CREA) noted that “In terms of monthly new supply, the bigger picture is listings are not flooding the market.” CREA is an association that represents realtors across Canada. CREA forecasted that for 2023, prices will fall by 2.3% year-over-year.

“With interest rates on the rise, home sales have continued to cool. In some parts of the country, home prices have fallen from their peaks reached earlier this year, are flat in some regions, and are still climbing in others. The issue of not enough homes for sale has not gone away,” CREA noted.

The reduction is across Canada. The GTA is heavily populated and there is a shortage of affordable homes. During the pandemic, home prices rose swiftly. The economy overheated and the cost of living increased. Basic necessities became expensive. There were seven interest rate hikes in 2022 in an effort to cool the market.

Phil Soper, President and CEO of Royal LePage, explained, “Comparing prices to previous years, the first quarter of 2023 should show the deepest decline in home value. We expect year-over-year comparisons to show progressively less price decline as the year goes on, with small week-to-week improvements in the third and fourth quarters, allowing Canadian home values to end 2023 essentially flat to where we are today.”

TD Bank predicts a price drop of 10.7% for 2023. “Weaker sales activity should push prices even lower in the near term. However, our forecast calls for average price to only partially retrace their pre-pandemic gains when they eventually bottom. An unanticipated surge in resale supply would undermine this view, but so far, the rate at which new listings are hitting the market has been subdued,” said Rishi Sondhi, from TD Economics.

Mr. Sondhi thinks that prices will decline in the first half of 2023 but level off in the second half. During the pandemic, house prices went up 64% but came down by 20% with rising interest rates.

Christopher Alexander, RE/MAX Canada’s president, commented that “Canadians are understandably hesitant to engage in the market early 2023. Despite this, more Canadians see real estate as a solid long-term investment when compared to this time last year.” RE/MAX forecasts a 3.3% year-over year drop for 2023.

Fitch Ratings is one of the largest and most respected credit rating agencies in the world. Fitch Ratings has predicted between 5-7% decline in prices.  According to Fitch Ratings, “Home price softening will be most severe in Canada, whose anticipated peak-to-trough decline of 15%, as measured by the mid-point of our forecast ranges, is almost the steepest of the markets profiled.”

Most of the price drop has already happened. Interest rates doubled during the second half of 2022, but home prices fell by about 20%. The central bank might soon raise rates by a quarter point. This will slow down the rate of inflation during the first half of 2023. Real Estate in the GTA is holding strong despite interest rate hikes. Many home owners are choosing to keep their current home. Supplies are quickly drying up.

Increasing interest rates is a temporary solution for the heated housing market. The root caused for price acceleration is a lack of supply.  With immigration, the GTA population has exploded. The cost for shelter will continue to climb.

2023 would be a good year for real estate. The best time to buy a home is in the first half of this year. If you are selling and buying, then, anytime is a good time. If you sell low, then you will buy low and vice versa. Interest rates will level off. During the second half, the market will rekindle. Towards the end of 2023, the interest rate should come down slightly. That will be fuel for the market.

We are living in uncertain times. It’s a good idea to reduce debts and build a financial reserve. Cost of living will remain high. It’s dangerous to walk on thin ice with spiked heels.