Royal LePage provides latest market forecast
The aggregate price of a Canadian residential unit is likely to decline by around 1% on an annual basis during the fourth quarter of 2023 to settle at $765,171, according to a new forecast by Royal LePage.
This is despite an anticipated “modest improvement” during the second half of the year, a trajectory that is likely to see the market on an upward trend by the end of 2023.
Annual declines will be apparent through the whole of 2023. Royal LePage is expecting aggregate home prices nationally to drop by 12% year over year during the first quarter, decrease by 7.5% in Q2, and tick down by 2% inn Q3.
Fortunately for the market, the ongoing correction does not seem to follow historical patterns, said Phil Soper, president and CEO of Royal LePage.
“After nearly two years of record price appreciation, fuelled by a steep climb in household savings, very low borrowing costs, and an overwhelming desire for more space during the COVID-19 pandemic, the frenzied housing market overshot and the inevitable downward slide or market correction began, intensified by rapidly rising borrowing rates,” Soper said.
However, “while the volume of homes trading hands has dropped steeply, home prices have held on, with relatively modest declines,” he added. “We see this as a continuing trend.”
What is supporting Canada’s current price levels?
Royal LePage said that the market environment is characterized by “an acute, long-term housing supply shortage.” Current demand mostly stems from Canada’s substantial millennial and immigrant demographics, both of which are mainly comprised of smaller families.
“Smaller household sizes mean more housing units are needed per capita than in the past,” Royal LePage said. “Pent-up demand is growing from buyers who have the ability to transact but have chosen not to in these turbulent times.”
Coupled with the market’s fundamental robustness, Soper said that housing affordability remains elusive.
“We have a tightly managed national mortgage portfolio, with historically low default rates, supported by homeowners who have been required to qualify for a loan under the strict federal stress test for the last five years,” Soper said. “And, we can’t forget that Canada has been grappling with an acute shortage of homes overall. We simply don’t see the factors at play that would result in a large drop in home values.”