Real estate market trends are noticeably different between 2022 and 2023. But just how different? Are they better or worse? The Canadian Real Estate Association (CREA) dropped its report and with it, provided some valuable insight. Let’s take a look at data from the likes of the CREA, Moody’s Analytics, and the Canada Mortgage and Housing Corporation (CMHC) to find and summarize key trends like prices, supply, demand, and mortgage rates and see how 2022 compares to 2023 and beyond.
Nationally, the CREA expected Canada to see lower home prices, with the level of decrease differing across provinces. For instance, in the earlier months of 2023, the metro parts of Ontario and British Columbia both saw a hard and fast decline compared to the rest of the country. The CREA suspected that as we move through 2023, we’d likely continue to see a national decline compared to 2022. To be exact, Moody’s Analytics explains that the CREA expected a 15% dip from mid-2022 prices with the lowest point hitting at the beginning of 2024.
However, there has been a surprising increase as of May 2023. The Aggregate Composite MLS® Home Price Index (HPI) rose 2.1% in May month-over-month. Between May 2022 and May 2023, prices rose 3.2%. Even with this increase, the HPI is at 8.6% below 2022 numbers. But lower prices don’t necessarily mean low prices. May 2023’s national average home price was a whopping $729,000. In January 2023, the HPI for an apartment showed nearly $600,000, while a two-story single-family home ran close to $1,000,000.
Though we are starting to see a rise in home sales as we move through 2023, that amount is 40% less nationally than it was a year ago. This is likely due to the Bank of Canada’s increased interest rates coupled with high mortgage rates. The start of 2023 showed a slip in the amount of available inventory, but the CREA has shown that new listings increased 6.8% month-over-month. However, this is still down significantly from previous years.
In regards to why the housing supply is limited, the CREA’s Senior Economist Shaun Cathcart said, “A rebound in housing activity this year was never really in doubt because we know the demand was there — the only question was around timing and that was answered this spring.
The 2023 house puzzle piece that was less obvious was the reluctance of existing owners to take advantage of a slower market to make a move because they don’t want to mess with the ultra-low fixed rates they locked in during the COVID-19 pandemic. Without existing owners supplying the market with new listings, this housing demand rebound may play out more acutely than might have been expected on the price side this year.”
Higher Demand for Rental Units
As previously discussed, high interest rates are shying homeowners away from, well, buying homes. Because of this, there is an increased demand for rental units. Comparatively, rental units have largely avoided the meteoric rises seen in single-family houses and are being seen as a safer, more desirable alternative. However, with high demand often comes short supply.
According to the CMHC, the rental supply increased significantly in 2022, but still fell short compared to the increased demand. This gap continues to widen in 2023.
Higher Mortgage Rates
The CREA shows us mortgage rates have been on the rise between the beginning of 2022 and 2023, with the five-year rate at 5.8%, a 250-point increase. Even with house prices on the decline, the high mortgage rates make those houses difficult to afford. Additionally, these rates aren’t the same in all parts of the country. Areas like Toronto and Vancouver are being especially affected due to their 47% decline in home sales. The CMHC predicts that these mortgage rates may start to lower as 2023 wanes and 2024 begins.
As it stands, current monthly mortgage rates are unsustainable for homeowners, as their payments are simply unaffordable. Moody’s Analytics says this impacts millions of households, with increased mortgage rates adding on hundreds of dollars per month.
First-time buyers are deeply impacted by these effects. Because homeowners who locked in those lower rates during the pandemic don’t want to move and mess with that rate, they aren’t moving. Even if first-time home buyers want to buy a single-family home, the low supply makes it increasingly difficult.
As you can see, 2022 wasn’t a great year for Canada’s housing market, and 2023 isn’t necessarily getting better. Buyers will need to try to hang tight until 2024 and 2025, when things are predicted to start evening out. In the meantime, snapping up available rental units may be the best bet. You can read more here for further details.