Home prices in the GTA will continue to fall in 2023, but high interest rates dash hopes for first-time buyers

According to a new Re/Max report, home prices will fall by 3.3% in 2023, with the biggest drops in Ontario and Western Canada.

Home prices in Canada will decline into 2023 giving buyers more negotiating power, a new Re/Max report says. However, persistently high-interest rates will dash first-time home buyers’ hopes and dampen sales activity.

According to a November 29 Re/Max report, average residential home prices will fall by 3.3% in 2023, with the biggest drops expected in Ontario and Western Canada, while Atlantic Canada will see an increase.

The price decrease will result in a balanced market — when demand equals supply — in 60 percent of Canadian regions.

The average sale price in the GTA is expected to fall by nearly 12% from its peak in February 2022 in spring 2023, according to the report.

“The majority of the price adjustment has already occurred,” said Cameron Forbes, a Re/Max Realtron Realty broker.

According to him, the average selling price of a home in October was $1.09 million, and it will fall to $1.05 million in 2023.

“We expect prices to fall slightly further, by around 3%, but the worst is over.”

Single-detached homes continue to be the most popular housing type among GTA buyers, with a surge in sales activity since the summer, when prices fell significantly.

However, some real estate experts believe the Re/Max forecast is overly optimistic. Economists predict that national home prices will fall another 10% to 15% by spring 2023. In the GTA, home prices have already dropped by nearly 20% since the peak in February 2022.

The Re/Max report calculates the GTA home price decline by comparing the average October price to the average GTA sales price for the entire year 2022, which is $1.19 million, resulting in an 8.5 percent drop in sales price.

“Given the current level of interest rates, their forecast is quite optimistic.” Another 10% drop is expected, according to our forecast. The Re/Max forecast for the GTA is also more conservative because it is based on an annual average,” said Stephen Brown, senior Canada economist at Capital Economics, an independent economic research firm.

On December 7, the Bank of Canada will raise the overnight lending rate by 0.25 percentage point, raising mortgage interest rates once more. Economists predict that interest rates will remain high in 2023, putting downward pressure on home prices.

Since March 2022, the Bank of Canada has raised the overnight lending rate six times, raising it from 0.5 percent to 3.75 percent. Mortgage rates have risen from historic lows of 1.5% to over 5%, scaring off potential buyers.

“Prices will not fall as quickly as we saw in the first half of 2022, but it’s good to go with what the majority of economists say for where home prices will go, so we’ll see a further decline of more than 3% next year,” said John Pasalis, president of real estate brokerage Realosophy.

According to Forbes, there are some benefits to higher interest rates putting downward pressure on home prices.

Home buyers face less competition when looking for a property and can put conditions on an offer, such as a home inspection, which was nearly impossible to do during the January and February 2022 homebuyer feeding frenzy.

In Toronto, many homeowners looking to buy a bigger property already have substantial equity in their homes, making the purchase feasible. The same can be said for young families in condos who bought before the pandemic, Forbes said, as a condo will have appreciated in value over the course of three or more years.

Because there is less competition, buyers can take their time when considering buying a home. According to Christopher Alexander, president of Re/Max Canada, homes are now on the market for 45 to 90 days, indicating a more balanced market.

However, Brown believes that first-time home buyers will find it difficult to enter the market while interest rates remain high and home prices remain out of reach for many.

“When we look at affordability metrics, it’s at its highest point since the 1980s and early 1990s,” he said. “Purchasing a home is still expensive and only available to a small percentage of the population.” Many people will struggle to buy a home,” he added.

Economists predicted more forced sales — where property owners sell quickly due to financial hardship — but many have instead placed their property on the lucrative rental market, according to Brown.

Experts predict that even with a more balanced market, there will be no flood of activity anytime soon. Sales and listings are both at 20-year lows, indicating low inventory and demand, which is bringing “some stability” to the market, according to Pasalis.

“Moving into the new year, I don’t expect those numbers (for sales and listings) to change all that much; buyers aren’t going to rush into the market any time soon,” he said.

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