Following a significant correction in 2022, real estate experts speculate on how much further home prices will fall.
The cost of purchasing a home in Ontario has fallen from lofty heights in the last year, and the question for 2023 is whether the downward trend will continue.
The Canadian Real Estate Association (CREA) benchmark price of a home in Ontario peaked at $1.08 million in March 2022, a measure that combines sale prices of condominiums, attached and detached houses across all markets in the province.
That was a staggering 64% increase in just two years, beginning with the COVID-19 pandemic.
CREA’s benchmark figure for Ontario has since dropped by nearly 20%, but even that significant drop only brings prices back to where they were in September of 2021.
How low will home prices in this province fall? When will the real estate market begin to recover, with the number of homes bought and sold monthly now lower than it has been per capita since the mid-1990s?
To provide you with this preview of the Ontario housing market for 2023, CBC News surveyed real estate experts and analyzed published forecasts.
Overall, real estate analysts predict that home prices will continue to fall, but not much further than they have already.
According to Rishi Sondhi of TD Economics, prices in Ontario will fall through early 2023 before bottoming out in the second half of the year.
“We expect further price declines, but less than what we’ve seen so far,” Sondhi said in an interview.
“We believe the majority of the correction… is behind us.”
This is due in part to indications that the majority of the Bank of Canada’s interest rate hikes are complete. In order to combat inflation, the central bank raised its benchmark rate seven times in 2022.
Condo projects could be canceled
According to Randall Bartlett, senior director of Canadian economics at Desjardins, it’s unclear when Ontario home prices will stop falling because various supply and demand factors are pulling in opposite directions.
Higher interest rates have been the most significant factor dampening demand. However, according to Bartlett, employment levels remain strong, and immigration numbers are expected to rise, boosting housing demand.
On the supply side, many property owners are hesitant to list their properties because of how prices have fallen, but many investors may be forced to sell due to the higher carrying costs of those high interest rates.
There are also indications that the previously quick pace of new home construction is slowing. The Canada Mortgage and Housing Corporation (CMHC) recently warned that a combination of a sharp drop in condo pre-construction sales, higher building costs, and higher interest rates in the Greater Toronto Area “could lead to project cancellations or delays in project launches.”
“We’re in a very different environment,” Bartlett explained. “Demand has slowed, prices have fallen, and interest rates have risen.”
He believes this will have an impact on the supply of new housing on the market in the second half of 2023.
Mark Ostland, a real estate expert with Meridian, Ontario’s largest credit union, believes that if the Bank of Canada stops raising interest rates, potential buyers will have more confidence.
Volume of listings expected to remain low
“We’re in what I call ‘even-steven times’ right now,” Ostland said in an interview.
“On the one hand, home prices are more affordable than they have been in recent years. On the other hand, rising interest rates are affecting buyers’ ability to qualify for the mortgage amount they require.”
According to real estate analysts, the volume of listings and sales in Ontario will remain low for some time.
“For obvious reasons, people don’t want to list their homes when sales and prices are falling, and so far, that factor is sort of winning out and keeping supply relatively subdued,” Sondhi said.
With the exception of the lockdown-affected period in the spring of 2020, home sales numbers in the Greater Toronto Area have been at their absolute lowest in more than a decade every month since June.
“Sharply higher interest rates and a significant loss of affordability continue to pose difficulties for buyers. And we believe they will keep the market quiet for some time, “RBC economist Robert Hogue stated in his December housing market report.
Hogue noted that Toronto-area prices have fallen 18% since their peak, and that “any further depreciation is likely to be more incremental.”
GTA vs. rest of Ontario
According to ReMax, one of Canada’s largest real estate firms, prices in the Greater Toronto Area will fall to 2021 levels, a roughly 11% drop from the average this year.
There is speculation about what will happen to housing markets in other parts of Ontario that have seen extraordinary price increases in the last two years.
“In our opinion, markets outside of the GTA have even further to fall than the GTA,” said Bartlett.
Smaller cities in Ontario have a higher proportion of houses to condos than the Toronto area, which is one reason they are more vulnerable to further drops in 2023: Condo prices have been less volatile than house prices.
According to ReMax’s 2023 real estate forecast, average price declines of up to 15% are expected in London, Kitchener-Waterloo, Barrie, and the Georgian Bay area, with modest price increases of two to 8% expected in the rest of the province, including Ottawa, Hamilton, Windsor, and Sudbury.
The CMHC predicts that the average sale price in Canada will continue to fall until the second quarter of 2023.
The coming year will be an early test of Premier Doug Ford’s promise to build 1.5 million new homes in Ontario over the next decade.
The Ford administration has used the housing shortage as an excuse to limit what municipalities can charge for development fees, weaken the powers of conservation authorities, and open up pockets of the Greenbelt to housing.
