2023 National Aggregate Home Price Forecast to end year 1.0% below fourth quarter of 2022: Royal LePage
First quarter expected to show double-digit year-over-year declines, with modest quarterly price growth in the second half of next year
- On a quarter-over-quarter basis, prices expected to flatten in Q2 and begin modest improvement in second half of the year, ending 2023 on upward trajectory; release includes national aggregate quarterly forecast for 2023
- Condominium prices expected to outperform single-family homes in all major markets except Edmonton and Winnipeg
- Greater regions of Toronto and Montreal forecast to see Q4 2023 aggregate price decline of 2.0% year-over-year
- Q4 2023 aggregate home price in Greater Vancouver projected to dip 1.0% year-over-year
- Despite declining affordability, heightened by rising interest rates, continued housing supply shortage acts as a floor on home price declines
Since the Bank of Canada began raising interest rates aggressively in March of this year, home prices in many major markets across Canada have been decreasing. The rate of decline, however, has been modest. According to the Royal LePage Market Survey Forecast, the aggregate[1] price of a home in Canada is set to decrease 1.0 per cent year-over-year to $765,171 in the fourth quarter of 2023, with the median price of a single-family detached property and condominium projected to decrease 2.0 per cent and increase 1.0 per cent to $781,256 and $568,933, respectively.[2]
“After nearly two years of record price appreciation, fueled by a steep climb in household savings, very low borrowing costs and an overwhelming desire for more space during the COVID-19 pandemic, the frenzied housing market overshot and the inevitable downward slide or market correction began, intensified by rapidly rising borrowing rates,” said Phil Soper, president and CEO, Royal LePage. “In an era characterized by the unusual, this correction has not followed historical patterns. While the volume of homes trading hands has dropped steeply, home prices have held on, with relatively modest declines. We see this as a continuing trend.”
Soper continued, “Much focus has been directed at the negative impact of rising rates; there has been far less discussion on factors supporting home prices.”
The higher cost of borrowing erodes affordability, which historically has pushed people out of the market, reducing demand and resulting in falling home prices. Conversely, there are a number of factors supporting home prices in the current environment.
The supply of homes for sale must exceed demand in order for prices to drop materially. Canada is struggling with an acute, long-term housing supply shortage. Organic demand is supported by the current lifecycle of our large millennial demographic and a record number of new immigrants who need to be housed. Smaller household sizes mean more housing units are needed per capita than in the past. Pent-up demand is growing from buyers who have the ability to transact but have chosen not to in these turbulent times.
Low unemployment, and a large buffer of unfilled job vacancies, means that few families are likely to need to sell their homes for financial reasons. Homes are modestly cheaper today than at the height of the pandemic boom, offsetting some of the impact of rising rates, and household savings remain above long-term norms, making it easier to overcome down payment hurdles.
“Traditional wisdom says that a recession triggers widespread job losses and missed mortgage payments. People are forced to sell or the bank forecloses and lists the property, flooding the market with new listings when demand is weak. In this post-pandemic period, people have kept their jobs. In fact, they have seen wages and salaries rise,” said Soper. “We have a tightly managed national mortgage portfolio, with historically low default rates, supported by homeowners who have been required to qualify for a loan under the strict federal stress test for the last five years. And, we can’t forget that Canada has been grappling with an acute shortage of homes overall. We simply don’t see the factors at play that would result in a large drop in home values.”
