The average price of a home in Canada could fall 20% to 25% by the first quarter of 2023, compared to the peak seen earlier this year, suggests a new report from TD Bank.
Prices have already started to decline over the summer, as mortgage rates and interest rates have risen. Many expect the decline to continue through the fall and even into winter.
The latest data from the Canadian Real Estate Association (CREA) shows the average price hit $629,971 in July, down 5% from $662,924 in the same month last year. On a seasonally adjusted basis, it was $650,760, down 3% from June.
According to TD Bank economist Rishi Sondhi, the projected price decline represents a decline not seen since at least the late 1980s, when data first began to be collected. But the decline would also follow an unprecedented rise seen during the pandemic.
“Our projected decline in national house prices would only partially eat away at the 46% rise recorded during the pandemic,” Sondhi said.
“As such, our forecast can be more accurately described as a recalibration of the market, rather than something more severe. »
More severe effects will likely be averted, Sondhi says, because of several factors that will help dampen housing demand and prices — the fastest rate hike cycle in decades, growing consumer incomes and the excess savings and low inventories in the new and resale markets.
Sondhi’s price predictions are in line with those made by a trio of Desjardins economists. They expected the average national home price to drop 15% from its February peak – $817,253 – to the end of 2023, but adjusted their forecast in August to instead aim for a drop of between 20% and 25%.
Contrary to predictions
Meanwhile, CREA forecast in June that the national average home price would rise 10.8% on an annual basis to reach $762,386 by the end of 2022 and reach $786,252 in 2023.
Meray Mansour, a Toronto real estate agent, noted that Mr. Sondhi’s forecast seemed more realistic based on what she’s seen in recent months.
In Toronto neighborhoods like Beaches and Leslieville, she found that prices had already dropped by 10%.
“The really smart buyer jumps at the chance, but some buyers think a lot more and believe that […] it’s going to go down a lot more,” she observed.
She sees this period as a “reset,” especially for sellers used to bidding wars and price spikes as the market soared during the pandemic.
Mr Sondhi’s report also calculates that the number of homes sold is expected to fall by 35% by the first quarter of 2023.
“Our projected peak-to-trough decline in Canadian home sales is well within the range seen in past housing downturns, and was overtaken by the global financial crisis, when sales fell 38%,” Ms. Sondhi.
CREA found July home sales fell 5.3% from June. The actual number of sales last month was 37,975, down 29% from July last year.
Over the long term, TD remains more bullish on the outlook for the housing market, as it says population growth should remain healthy and support fundamental demand.