Aggregate home prices will end 2023 down slightly for the year, Royal LePage projects
'After nearly two years of record price appreciation ... the frenzied housing market overshot, and the inevitable downward slide or market correction began'
Aggregate home prices will end 2023 down slightly for the year, according to the latest forecast from Royal LePage.
The real estate firm’s 2023 Market Survey Forecast, which is being released Tuesday, predicts aggregate prices will drop by one per cent to $765,171 by the fourth quarter of 2023, a decline that could be worse given the effects of rising interest rates, declining affordability and a housing supply shortage. The median price of a single-family detached property will also decrease by two per cent to $781,256 while the median condominium price is projected to rise by one per cent to $568,933.
“After nearly two years of record price appreciation, fuelled 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,” Royal LePage chief executive Phil Soper said in the report. “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.”
In an interview, Soper said the supply of homes for sale must exceed demand in order for prices to drop substantially. However, based on a Canada Mortgage and Housing Corporation’s report released in October, Canada does not have the labour capacity to build the 3.5-million new homes needed to achieve housing affordability by 2030.
“Canada is struggling with an acute, long-term housing supply shortage,” the report said. “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 number of unfilled job openings mean that few families are likely to be forced to sell their homes, contributing to the lack of homes on the market.
This contrasts with a traditional recessionary environment, in which job losses snowball into missed mortgage payments and foreclosures, leading the market tobe flooded with new listings. However, in Canada’s post-pandemic period, most people have kept their jobs.
“In fact, they have seen wages and salaries rise,” Soper said. “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. We simply don’t see the factors at play that would result in a large drop in home values.”
Results are expected to vary across the country. For example, Calgary, Edmonton and Halifax are expected to record modest price gains in 2023 due to their relative affordability.
Soper believes that would-be buyers sitting on the sidelines have not been forced to exit the market.
“While some of these families have been priced out for now by rising borrowing rates, we believe some have voluntarily adopted a wait-and-see attitude, not wanting to buy a property today that may be worth less tomorrow. Yet people in their thirties, forties and fifties have known only a Canada where home prices rise faster than incomes,” he said. “When interest rates appear to have stabilized, these buyers may jump back into the market, anticipating a return to escalating home values.”
Buyers re-entering the real estate market looking for discounts may be disappointed, Royal LePage chief operating officer Karen Yolevski said.
“When people do move off the sidelines or when we see rates stabilize for a number of months, we are going to see increased supply issues. We already have a problem,” Yolevski said in an interview. “Buyers returning to the market will exacerbate that problem because more people will be looking for houses for sale, will increase competition and could put upward pressure on prices once again.”
Canada’s aggregate home price is expected to be 12 per cent lower in the first quarter of 2023 compared to the same quarter in 2022. Home prices are forecasted to see modest quarterly gains in the third and fourth quarters of 2023. However, overall values remain lower than the same periods in 2022.