Andrew Hamilton and his wife said goodbye to their home in Toronto’s Junction neighborhood about a year and a half ago when housing prices soared, but finding a new home proved difficult.
With no homes available that fit their needs or price range, the couple chose to temporarily use the equity they received from the sale of their house in a rental property in Etobicoke.
But they still have one eye on the market and are hoping the current cooldown will deepen enough for them to get another home.
“I think patience will pay off,” Hamilton said.
His sentiments are common across the sector, especially among prospective buyers who have complained about the torrid pace at which Canada’s real estate market has moved in recent years.
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But many believe 2023 could be the year their luck changes. Prices have been steadily falling since last spring, bidding wars are less common and economists are predicting an end to the rapid succession of rate hikes by the Bank of Canada that have added hundreds, if not thousands, of dollars to monthly mortgage payments.
“It just takes time,” said Despina Zanganas, a Toronto broker with PSR Brokerage.
She expects that buyers who have put off buying will feel more comfortable this year as changes in the housing market sink in.
“They get used to it,” she said.
“People say they don’t need to get into bidding wars and make unconditional offers. Now they have the freedom to make conditional offers, so that gives a lot of people a bit more confidence.”
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But there is at least one big change that could be on the horizon. Economists predict that 2023 will be the year Canada enters another recession, although it is unclear how severe the downturn will be.
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Douglas Porter sees a 25 to 30 percent chance that Canada’s economy will land softly when inflation and interest rate hikes gradually end, helping to avoid a recession. There is a 50% chance of a shallow drop and a 20 to 25% chance of “something more serious”.
“They all have implications for the housing market,” said the chief economist at BMO Capital Markets.
“Clearly, the smaller the hit to the economy, the better the news for the housing market.”
Even under current conditions, he sees the housing market as one of the weakest parts of the economy, a phenomenon not seen in years, if not decades.
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His forecast predicts that by the time the current economic cycle is over, home prices will have fallen between 20 and 25 percent from their peak, noting that they have already fallen 10 percent.
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The Canadian Real Estate Association said last month that the actual national median home price was $632,802 in November, down 12 per cent from the same month last year.
With prices falling, Porter said the market is sitting in “suspended animation” with sellers worried about listing their properties because they won’t get what their neighbors did last year and buyers sitting on the sidelines waiting for better mortgage rates and more inventory.
“Of course, you don’t want to jump in and buy when it looks like prices could go down a lot more,” Porter said.
The cuts seen so far have been offset by a rapid succession of hikes in the Bank of Canada’s key interest rate, which is at 4.25 percent, the highest level since January 2008.
Alison Van Rooyen, vice president of consumer credit at Meridian Credit Union, estimated that the latest increase — a half percentage point in December — would increase payments on a $450,000 variable-rate mortgage with a 25-year amortization by about $130 more each month. Beginning in 2022, the rising rates amount to roughly $1,000 more per month for the same mortgage.
“To me, the interest rate story is the biggest one this year that will have the biggest effect so far,” Porter said.
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“The reality is that the price correction we’ve seen so far really hasn’t even offset the rise in interest rates. However, I would argue that the market is still absorbing the rate hike and we have yet to see it fully reflected in prices.”
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The Toronto Regional Board of Real Estate said Thursday that the median price was $1,051,216 in December, down 9.2 per cent from a year earlier.
A day earlier, the Greater Vancouver Real Estate Board reported that the overall reference price now stands at $1,114,300, a three per cent decrease from December 2021, and on Tuesday, the Calgary Real Estate Board revealed that the average price has risen by four percent to $495,231.
Porter expects the Prairies to be the most resilient market because it hasn’t faced as much overvaluation as other regions in the early years of the COVID-19 pandemic.
He sees the Atlantic provinces and some parts of British Columbia in the middle of the pack because they haven’t had the exact boom that Ontario has, but are now struggling with increased immigration.
He will watch mid-sized cities in southwestern Ontario, such as Hamilton, Kitchener, London and Windsor, most closely because they “fully developed” during the pandemic but have since slipped into a “deep” correction.
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Porter will be looking to see if they show signs of stabilization, which could be an omen for the broader market.
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But he cautions that the unprecedented nature of the pandemic makes the current housing market difficult to predict.
“The housing market may hold up a little bit better than what we expect, just because it’s such an unusual cycle,” he said.
“But I don’t think any of us can have a great deal of confidence in our forecasts these days because there are so many unique aspects of this economy that we’re dealing with.”
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