CANADA - In the first quarter of 2023, the housing market in Canada could see prices drop by 25%. While the housing market is still very attractive for investors, population growth drives demand. This is causing interest rates to rise and prices to fall. As a result, many buyers will wait to see how the market will react to changes in the cost of borrowing and prices before they commit to buying. However, the worst may still be ahead.
Home Prices Could Fall By Up To 25% In The First Quarter Of 2023
A prominent economist says the US housing market is on the verge of a downturn. Ian Shepherdson of Pantheon Macroeconomics says that seasonally adjusted existing home sale prices declined by 0.7% in August, the third straight monthly decline. However, Shepherdson says that a headlong collapse is unlikely. Instead, the market will likely remain stable through the first quarter of 2023.
In addition to the downturn in the housing market, rising mortgage rates will continue to hurt the economy. However, rising and low unemployment rates will also negatively impact the housing market. This could force some home buyers to sell in areas with lower home prices. However, a few factors should help stabilize the housing market in the coming years.
The market will remain competitive if housing inventories are not depleted. A shortage of housing inventory will likely curb home sales. Although home construction has increased in recent years, the number of homes on the market is still far behind. This means that a drastic drop in home prices would require a substantial decrease in demand.
The current rate of home price growth is unsustainable. While a 25 percent drop may seem catastrophic, it would still represent a partial retracement of the last four-year surge. It would be a much smaller drop than the 38% decline during the Global Financial Crisis.
Population Growth Fuels Housing Demand
As the population of Canada continues to increase, so will housing demand. The country is experiencing double-digit population growth and is committed to welcoming 1.2 million immigrants and international students between 2021 and 2023. While this is good news for the economy, it will intensify the housing shortage in the country's major cities.
Despite the housing shortage, Canada's housing market outlook is still positive. According to TD, healthy population growth is expected to continue to drive housing demand in the country. The forecasted peak-to-trough decline in housing sales in Canada is within the range of previous housing downturns. For example, Canadian home sales plunged 38 percent during the global financial crisis.
While affordability is a factor, it is also important to consider other factors, such as income and monthly expenses. For example, the affordability of a home is affected by the type of mortgage available to a buyer. In addition, a higher interest rate can lower the affordability of a home, limiting the options for people with less money.
As a result, the market remains tight, with a high proportion of one-person households. In addition, the number of one-person households in Canada is growing at a rapid pace. Out-of-town buyers increasingly turn to affordable markets in other provinces, such as Quebec. The lack of affordable products and land is also a factor.
The Canadian Housing Market Is Popular With Investors
The Canadian housing market has done extremely well over the past few years. In fact, in 2020 and 2021, the country saw a record number of homes sold. According to the MLS Home Price Index, by the end of the year, prices were up nearly 25 percent from the previous year. With such high growth rates and limited supply, the Canadian housing market will likely remain popular for the foreseeable future.
Despite this, there have been concerns about foreign buyers in the Canadian housing market. In the last couple of years, Canadian government budgets have focused on curbing the role of foreign investors. This may be a way to keep the housing market from booming too fast. The Canadian government has even banned foreign investors from buying property in the country for two years.
The Canadian housing market is popular with investors, although the exact numbers are unclear. According to a recent study, the vast majority of homes purchased in Canada are owned by individuals. This includes both mom-and-pop landlords and larger investors. But the study did not capture the purchase of homes by corporations and repeat buyers.
In the first two months of 2022, the Canadian housing market saw an increase of 4.6%, according to the Canadian Real Estate Association. The Canadian housing market is also attracting new sellers. In February, the average home price hit a record CAD$816,720, a rise of 20.6% over the previous month.
