Could Canada’s housing market heat up again?

A gruelling year for Canada’s housing market in 2022 saw home prices plummet throughout many major cities and sales activity hit the brakes as rising interest rates and a cost-of-living crisis took their toll across the country. But could the end of that slowdown be in sight this year?

The Bank of Canada looks like it could finally have reached the end of its rate-hiking cycle following a 25-basis-point jump in January, and prominent observers including the Toronto Regional Real Estate Board (TRREB) have suggested in recent weeks that the housing market could see some relief in 2023.

Paul Baron, TRREB’s president, said upon the release of Greater Toronto Area (GTA) real estate market statistics for January that the Bank appearing to hit pause on further rate hikes, and home sales and prices seeming to have found support of late, could “prompt some buyers to move off the sidelines in the coming months.”

He said a tight jobs market and record population growth could also help keep housing demand high in the year ahead.

Could home sales start to move upwards again?

Ryan Sims, a mortgage agent with TMG The Mortgage Group based in London, Ontario, told Canadian Mortgage Professional that there were some signs that the market was beginning to gather pace again, although he emphasized that activity remained well off the blistering clip it set at the height of the COVID-19 pandemic.

“We’re already starting to see [that] we’re back to multiple offers on a few different properties,” he said. “Now, not multiple offers and $250,000 above listing prices. But we’re getting that interest because we put off demand for coming up to eight, nine months now – people haven’t bought a house.”

The doom-and-gloom-laden narrative that Sims said pervades television, radio, and social media coverage of the housing market may ease somewhat, Sims added, now that Canada’s central bank has said clearly that it may be done with interest rate hikes for now.

Chris Bargis of Mortgage Edge told CMP that his team was advising clients to go with a short-term fixed or long-term variable based on their level of risk tolerance & belief about the direction of the Canadian economy this year and beyond.https://t.co/d1xXlE1Vfg

— Canadian Mortgage Professional Magazine (@CMPmagazine) February 7, 2023

“I think once the Bank of Canada levels out, it gives people this feeling that the worst is over and they can kind of start treading back into the market a little bit,” he said. “So I think that will be important to normalize a little bit, because people still need to live there.

“So people aren’t going to go out and buy the biggest investment of their lives when the Bank of Canada is hiking rates and [there’s] all this media talk about uncertainty, bankruptcy, credit default and all that. Once we can see the Bank of Canada pause for now [and] at least reassess that rates are going up, then maybe we can get some decent people back into the market.”

When will a recovery in Canada’s housing market begin?

2023 has started much the same as the last year ended where Canada’s housing market is concerned, RBC Economics said in a recent report, with consistent weak activity and falling prices evident across most markets with the exception of Calgary and a few others.

For the most part, the sharp correction that’s taken place nationally seems like it could be on the wane, according to report author Robert Hogue, with most markets expected to bottom out in the coming months.

The fact that home resales and prices have fallen in Ontario, British Columbia and elsewhere, Hogue said, and with the apparent end of central bank rate hikes, “point toward a cyclical bottom around spring or summer, though the timing may vary from market to market.”

That said, an uptick in sales and prices won’t be a rapid one, and there appears no prospect of the market heating up to the extent that it did during the record-low-rate environment of 2021, Hogue said.

“The recovery that will follow… is poised to be very gradual at first,” he noted. “We expect the massive increase in interest rates will continue to hold back activity and compress purchasing budgets for some time.”

What are you advising clients on how you expect Canada’s housing and mortgage markets to play out in 2023? Let us know in the comments section below.