2023 Real Estate Market Outlook (And What It Means for You)

Last year, one factor drove the real estate market more than any other: rising mortgage rates.

In March 2022, the Bank of Canada began a series of interest rate hikes in an effort to pump the brakes on inflation.[1] And while some market sectors have been slow to respond, the housing market has reacted accordingly.

Both demand and home prices have softened, as the primary challenge for buyers has shifted from availability to affordability. And although this higher-mortgage rate environment has been a painful adjustment for many Canadians, it should ultimately lead to a more stable and sustainable real estate market.

So what can we expect in 2023? Will mortgage rates continue to climb? Could home prices come crashing down? While no one can forecast the future with certainty, here’s what several industry experts predict will happen to the Canadian housing market in the coming year.

MORTGAGE RATES WILL EVENTUALLY STOP CLIMBING

There are signs that the central bank’s series of rate hikes may be coming to an end.[2] If that happens, variable mortgage rates may finally stabilize. Fixed mortgage rates, on the other hand, could continue to trend lower.[3] It's also possible that rates on both variable and fixed-rate mortgages will climb instead. Bank of Canada Governor Tiff Macklem has made clear that the central bank is prepared to keep hiking rates aggressively if inflation fails to dissipate.[4]

What does it mean for you? ?No one knows for certain where mortgage rates will land. But if you have plans to buy a home or renew your mortgage in the coming year, you’ll want to weigh your options carefully when deciding between a variable or fixed rate. Reach out for a referral to a mortgage professional who can help.

BUYERS WILL RETURN TO THE MARKET

The pace of home sales fell steeply last year as higher mortgage rates priced would-be buyers out of the market. However, some industry experts predict that the Canadian housing market is poised to turn a corner. Douglas Porter, chief economist at BMO Capital Markets, projects that existing home sales will fall through the first half of 2023 and then reverse course and begin to rise in Q3.[5]

What does it mean for you? ?If you’re a buyer who has been waiting for conditions to normalize, now may be an ideal time to start your home search. As more buyers begin to enter the market, you’ll face steeper competition and reduced negotiating power. And if you’ve delayed selling your home, this could be the year to make a move. Reach out to schedule a free consultation and home value assessment.?

HOME PRICES WILL STABILIZE LATER THIS YEAR

Economists at CIBC speculate that home prices will hit a floor in the coming months: “A lower 5-year rate and pent-up demand amplified by demographics will work to establish a bottom in prices by the spring of 2023,” write Benjamin Tal and Katherine Judge.[6] RBC Assistant Chief Economist Robert Hogue offers a similar projection: “We expect prices will keep falling until a bottom [this] spring.”[7]

What does it mean for you??It can feel scary to buy a home when there’s uncertainty in the market. However, real estate is a long-term investment that has been shown to appreciate over time—and the best bargains are often found in a slower market, like the one we’re experiencing now. If you’re planning to sell this year, you’ll need to chart your path carefully to maximize your profits. We can help you make an informed decision about the right time to make a move.

RENT PRICES WILL CONTINUE TO CLIMB

Affordability challenges for would-be buyers, inflationary pressures, and an overall lack of housing are expected to continue driving up rent prices in much of the country. “Interest rates are actually working to elevate rent inflation because many people are not buying, so they are renting more,” CIBC Economist Benjamin Tal told CBC News. ?And according to Tal, the higher rates have also disincentivized builders and developers from investing in rental properties. That, in turn, has exacerbated the undersupply of available units.[8]

What does it mean for you??Rent prices are expected to keep climbing. But you can lock in a set mortgage payment and build long-term wealth by putting that money toward a home purchase instead. Reach out for a free consultation to discuss your options.

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WE’RE HERE TO GUIDE YOU

While national real estate forecasts can provide a “big picture” outlook, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and drive home values in your particular neighbourhood. If you’re considering buying or selling a home in 2023, contact us now to schedule a free consultation.

The above references an opinion and is for informational purposes only.?It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1.????CP24 News

2.????Reuters

3.????Reuters

4.????Global News

5.????BMO Capital Markets

6.????CIBC Capital Markets

7.????RBC Special Housing Reports

8.????CBC News