Real Estate Outlook 2023

Last year one factor drove the real estate market more than any other – rising mortgage rates. In March 2022, the Bank of Canada began a series of interest rate hikes to pump the brakes on inflation.[1] While some sectors have responded slowly, the housing market has reacted rapidly to the rise. Both demand and home prices have softened as the primary challenge for buyers have shifted from availability to affordability.

Although this higher-mortgage rate environment has been a painful adjustment for many Canadians, it should ultimately lead to a more stable and sustainable real estate market.

WE'RE HERE TO GUIDE YOU

While national real estate forecasts can provide a "big picture" outlook, real estate is local. As local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and drive home values in your neighbourhood.

So, what can we expect in 2023? While no one can forecast the future with certainty, here's what several industry experts and economists predict will happen to the Canadian housing market in the coming year.

MORTGAGE RATES

There are signs that the central bank's series of rate hikes may be coming to an end.[2] If this happens, variable mortgage rates may finally stabilize, and fixed mortgage rates could trend lower.[3] It's also possible that variable and fixed-rate rates will climb as the Bank of Canada Governor Tiff Macklem has clarified that the central bank is prepared to keep hiking rates if inflation fails to dissipate.[4]

What does it mean for you?  Although no one knows where and when mortgage rates will settle if you have plans to buy a home or renew your mortgage in the coming year, consider carefully when deciding between a variable and fixed rate and length of term. Reach out for a referral to a mortgage professional who can help you consider all the risks, pros and cons of each option.

BUYERS WILL RETURN TO THE MARKET

The pace of home sales fell steeply in late 2022 as higher mortgage rates priced would-be buyers out of the market. However, some industry experts predict that the Canadian housing market is poised to turn a corner. Douglas Porter, Chief Economist at BMO Capital Markets, projects that existing home sales will fall through the first half of 2023 and then reverse course and begin to rise in Q3.[5]

What does it mean for you?  If you're a buyer who has been waiting for conditions to normalize, now may be an ideal time to start your home search. As the year progresses, we anticipate more buyers will enter the market, so sooner might be better. If you've delayed selling your home and it's time to downsize, reach out to schedule a free consultation and home value assessment. I'd love to help you navigate the market.

HOME PRICES WILL STABILIZE

Economists at CIBC speculate that home prices will hit a floor in the coming months: "A lower 5-year rate and pent-up demand amplified by demographics will work to establish a bottom in prices by the spring of 2023," write Benjamin Tal and Katherine Judge.[6] RBC Assistant Chief Economist Robert Hogue offers a similar projection: "We expect prices will keep falling until a bottom [this] spring."[7]

What does it mean for you? It can feel scary to buy a home when there's uncertainty in the market. However, keep in mind real estate is a long-term investment that appreciates over time—and the best bargains are often found in a slower market like the one we're experiencing now. And if you're planning to sell this year, we can help you decide on the right approaches to make your move.

Remember, it's about more than timing the market as much as it's about working with the needs of you and your family.

RENT PRICES CONTINUE TO CLIMB

Affordability challenges for would-be buyers, inflationary pressures, and an overall lack of housing are expected to continue driving up rent prices in much of the country. "Interest rates are working to elevate rent inflation because many people are not buying, so they are renting more," CIBC Economist Benjamin Tal told CBC News. According to Tal, the higher rates have also disincentivized builders and developers from investing in rental properties. That, in turn, has exacerbated the undersupply of available units.[8]

What does it mean for you? Rent prices are expected to keep climbing, so if you can take on a mortgage, you can build long-term wealth by putting that money toward a home purchase instead.

If you're considering buying or selling in 2023, please don't hesitate to reach out to schedule a free consultation.

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1.    CP24 News
2.    Reuters
3.    Reuters
4.    Global News
5.    BMO Capital Markets
6.    CIBC Capital Markets
7.    RBC Special Housing Reports
8.    CBC News