State of the Canadian Housing Market

• In 2023, there will be fewer homes sold in Canada than were sold in 2022, when home sales were relatively high.

• Property types, such as condos and townhouses, will increase in popularity due to the Toronto pre-construction market. They offer more affordability in the current high-interest environment where mortgage payments are very high, making condos and townhouses more attractive to buyers.

• Toronto, Vancouver, Ottawa, and Montreal will share a downward trend in pricing and activity. Haven is expecting that Canadian Prairie region provinces, such as Calgary, Edmonton, Regina, Saskatchewan, and Winnipeg, will see less market declines and more sales activity, propped up by stronger local economies. 

• 2022 inventory levels were low in many markets. However, across Canada, markets are trending away from a seller’s market to a balanced market. The balanced market will potentially trend toward a buyer’s market, depending on what happens in the spring.

• It will be unlikely home prices will increase five or more percent or decline more than 10 percent.

• It is likely the Canadian market will experience a slow decline in home prices, about 3-5 percent year over year. 

• The pre-construction market in Toronto, Vancouver, and other cities will become an important factor in the development of the 2023 Canadian housing market. Investors have bought properties hoping they go up in value before sale. However, prices have come down, and these properties are not going to fetch investment value. In Toronto, there are approximately 30,000 condos coming up ready for possession in 2023. If a substantial number of buyers are unable or unwilling to close on those properties, a flood of condos could hit the market, potentially at reduced prices in order to sell.

• Immigration will also be a deciding element in the housing market. The government has set a 2023 reduction target of 500,000 new Canadians. In 2022, Canada saw nearly 1 million immigrants and foreign investors, putting enormous pressure on the housing and rental markets. It remains to be seen how this will affect home inventory and prices.

• Regionalization will impact the Canadian real estate market. Investors and agents are expecting the Prairies to have much better markets than areas such as Toronto and Vancouver. Real estate professionals are expecting regional divides to be very accentuated this year.

• Employment levels are an important trend. If the Bank of Canada sees the Canadian economy adding jobs, then interest rates will continue to rise. However, if the job numbers stay strong, high rates of foreclosure are unlikely, but this could change drastically if unemployment increases significantly.

• Mortgage delinquency rates are a trending factor. If the economy becomes handicapped further, delinquency rates will increase. Right now, Canada has an all-time record low of .14 percent of mortgage holders in delinquency, or about 7K mortgages. If the delinquency rate increases, it will produce foreclosures and distressed sellers.

• The most important trend will be the Canadian spring market (March, April, May, and June). The housing market typically sees a large increase in new listings during the spring but also a corresponding hike in buyer demand. If the market experiences an increase in listings and buyers, will there be enough inventory? If the listing supply is not met, the result will be more downward pressure on home prices. 

To begin with a professional opinion on the state of the Canadian housing market, Haven was fortunate enough to interview Kimberly Phinney, Agent & COO/ President of Royal LePage Real Estate Services at Phinney Real Estate Brokerage, with offices in Mississauga & Oakville. As a special addition to the very first article, below is an excerpt of our conversation.

HAVEN: How is the Canadian market presently doing?

Kimberly Phinney: I generally sell properties weekly in my personal practice, and in January I saw heating up from 2.5 weeks into the new year. But I would say it is neither a buyer’s market nor a seller’s market—it’s more a “balanced” market. To explain, I see buyers more tentative or cautious to not overpay. However, there is less choice in the marketplace to walk away from a property they really would like to purchase because there are not as many properties to choose from in many instances. It’s not the traditional bidding wars, and it’s also not as bad as the media portrays! A slow week or two can often be more about what is going on in weather, vacation plans, major events in the media, and family commitments, etc. A market should never be predicted on a couple of weeks of slowdown without first analyzing why that may be. But it is important to be realistic about general overall conditions and to work on offers as they come in to really try to put a deal together.

H: How should the buyer approach this market?

KP: I’d say that any long-term buyer should look at this time as a period of opportunity. Rates are higher now, but these fluctuate…and so do prices. It’s important to remember that the pendulum will swing again at some point.

H: How are sellers reacting to the current state of the market?

KP: If there was to be more decline from pricing from a seller’s perspective (especially on a downsize), would they not be better off to cash out now and put the money into a secure GIC that some banks are offering over 5 percent return on? A 5 percent return without paying house taxes, condo fees, utility costs, vacant house taxes, etc. may yield a better return and would have been a very normal yearly increase historically.

H: What is important for buyers to consider?

KP: For buyers, remember when we had bidding wars and houses sold without the proper due diligence? We have the ability to do that now, but we also must remember that supply is low, and this may become a longer-term problem again. In many cases the rise in rates has been offset in lower housing price adjustments, so the buyer isn’t paying more, and as prices went down so did land transfer tax. There is a great chance buyers may actually pay less for the same house in future if interest rates adjust lower again as inflation gets under control. Buying now may be the best opportunity. As people settle into higher rates being the “new norm,” as was the case decades ago, when I bought my first home, the demand to buy may actually increase, even in current market conditions.

H: Do you have any further advice for buyers?

KP: It is a good opportunity for buyers to negotiate while realizing there isn’t the endless supply of choice to pass over a good property in many categories. As the higher rates become the “new norm” and buyers realize that as rates went up that prices came down, affordability isn’t all that different. What they should also weigh into is inventory and immigration rates, and at some point, they may see the pendulum swing again for prices. Those waiting for mortgage defaults from sellers from the previous market should also remember the stress test was raised to higher qualifying rates to ensure that buyers back then could handle higher payments. Buyers should consider purchasing now despite higher interest rates. If a buyer waits for rates to drop, they may pay less for the property, but they may also find themselves caught up in a frenzy with others that waited too long to buy.

H: Do you have any further advice for sellers?

KP: For sellers still looking to wait it out to achieve the highest sale price: if downsizing, there are great secure investments with a higher rate of return than what sellers in the previous market had. Some over 5 percent without investment fees. It may offset waiting it out for a higher purchase price without risk and without continuing to pay mortgage rates, condo fees, vacant home taxes, or other carrying costs associated with waiting for the higher price. You should always look at a deal in its entirety, in the market you are in. There are sellers that hold out for a higher sale price that actually net less than selling sooner in the process and reinvesting into a higher valued investment. There are pluses and minuses in every market, and today is one of the first times in recent years to get secure investment rates equivalent to historic real estate returns. Never fixate on the dollar value but rather look at your investment in its entirety and what the net value is to you in the known market.

H: Final thoughts?

KP: It’s important to remember that each housing region is unique, and I would encourage any buyer, or seller, to reach out to a well-respected agency/sales representative in their market area for specific advice when buying or selling.

Next month, Haven will take a closer look at how inflation and interest rates are affecting the current Canadian housing market.