On July 12th, the Bank of Canada raised interest rates again, hiking them by 25 basis points (0.25%). The current rate is the highest it’s been since April 2001. This move is a further attempt at directing the economy toward a “soft landing,” or a gradual slowdown that curbs inflation while avoiding a full-blown recession.
Because homebuyer activity is tied to mortgage rates, this development could have a significant impact on the Canadian housing market. Buyers are still struggling with affordability, which drives demand down.
That means home prices should come down too, right? Not quite—and the reason is low inventory.
Sellers currently locked into a low interest rate don’t want to sell their homes only to face a higher rate on their new mortgage and high prices in the housing market. So although demand is lukewarm, it’s still greater than the supply of available houses.
How will this affect home prices in the second half of 2023? Let’s check out updated predictions from the experts.
Mid-year home price predictions from the experts for 2023
CREA
As a result of the Bank of Canada’s resumption of rate hikes, buyer affordability struggles, and low housing inventory, CREA has revised its earlier home price prediction for 2023. Now, the real estate association forecasts that prices will edge down by 0.2% by the end of 2023, and then rebound with a 3% growth from 2023 to 2024, with a general stabilization until interest rates start to decline ("CREA Updates Resale Housing Market Forecast," 14 July 2023).
TD Bank
Referencing interest rate hikes, TD Bank predicts that despite a strong performance in the first half of the year, home sales will decline in the second half of 2023. In a revision of their previous prediction, experts at the bank believe that third-quarter price growth will be positive, but will drop in quarter four. It’s their conclusion that the Bank of Canada’s rate hikes have not only affected affordability but also buyer psychology, reintroducing uncertainty to the market and discouraging homebuyer activity (Sondhi, 27 June 2023).
Nesto Mortgages
Nesto Mortgages updated their 2023 home price forecast on July 17th. The mortgage company expects home prices to vary regionally, but overall, Canada will remain a buyer’s market for most of 2023. Citing elevated interest rates and a reduction in demand, experts at Nesto Mortgages believe prices will “remain steady, with some fluctuations caused by a possible recession” (“Canadian Housing Market Outlook 2023,” 17 July 2023). They do concede that “some experts believe prices have already hit their lowest point and could increase again soon,” but this depends on mortgage rates and affordability constraints on buyers.
Moody’s Analytics
Moody’s Analytics stated that the Canadian housing market has peaked and is now in a period of softening prices—though the company acknowledges that effects won’t be felt evenly across provinces. Moody’s writes that the Canadian market is “notably interest-rate sensitive” (LaCerda, Singh, Mintah, Pinel, April 2023), so the Bank of Canada’s rate increases have chilled the market substantially. With this in combination with affordability problems across the country, buyers are struggling. Moody’s predicts that prices will continue declining until they bottom in early 2024, for a total decline of 15% from their peak in 2022.
Royal Bank of Canada
RBC’s July 2023 home pricing forecast shows price declines in all provinces but two, which show less-than-1% increases. However, the bank expects a rebound for prices in 2024, with all regions showing positive growth. Home sales are also currently down due to affordability issues and high interest rates, but RBC predicts those numbers too will pick up once those limitations loosen their grip on buyers in the market.
The bottom line
Most economists and housing market experts concur that home prices in Canada will somewhat decline in 2023 due to high mortgage rates and low inventory. Some are predicting a very slight decline, while others forecast a more significant change—though most agree that prices will rebound in 2024. What does that mean for you?
If you’re trying to buy, make sure you shop around for a mortgage to get the best rate. Doing so can save you thousands!
If you’re thinking of selling, get in touch with an expert real estate agent in your area. You want someone by your side who knows how to skillfully navigate and sell your home for top dollar under any market conditions.
Unsure about your next moves?
Get in touch today. We’re happy to discuss your unique housing situation and answer your questions—from the simplest inquiry to the most complex. Reach out and put your market worries to rest.
