How much further do real estate prices have to fall?

Home prices in Canada’s biggest markets ended 2022 well below the soaring peaks posted earlier in the year. Now the question is: How much further do they have to fall?

In all cases, the declines commenced after the Bank of Canada began to raise interest rates in March — whether prices continue to fall in 2023 may depend as much on the path of interest rates as anything else.

BMO chief economist Douglas Porter, for one, projects that high interest rates will continue to pummel the housing market in 2023, predicting home prices slip another 12 per cent and sales fall another 15 per cent.

For other industry experts, the consensus seems to be that home prices will slide in 2023, but that a bottom might be in sight.

We don’t look for rate relief until 2024

Douglas Porter

They reason that the anticipated demand for housing from the record number of immigrants expected to settle in the nation’s major housing markets — in addition to interest from buyers who have been waiting for lower prices — will offer support.

“If we don’t see a meaningful shift upwards in terms of supply then that would start to exert upward pressure on prices once again,” Toronto Regional Real Estate Board (TRREB) chief market analyst Jason Mercer said in an interview.

In June, The Canada Mortgage and Housing Corporation (CMHC) concluded that the country would need to build 3.5 million new homes by 2030 to reduce its shortfall and improve affordability — but follow-up research found that there will only be enough labour to increase the number of starts in four major provinces — Ontario, Québec, B.C. and Alberta — by 30 to 50 per cent.

Right at Home Realty CEO John Lusink, meanwhile, said that although sales and supply were down in 2022, he sees things picking up in the GTA in the spring.

“It’s been quiet but I will tell you, these agents are all talking about listing clients who are getting ready to put properties on the market in the spring,” Lusink said.

We will continue to feel the impact of higher borrowing costs

John DiMichele

Full year data on Toronto’s housing market was released by TRREB early Thursday.

It showed there were 152,873 new listings reported through TRREB’s MLS system in 2022 — an 8.2 per cent decline compared to 166,600 new listings in 2021. Home sales, at 75,140 units, did not fair any better, down 38.2 per cent from 2021’s record of 121,639 units.

On a month-over-month basis, December’s composite benchmark price was down just 0.77 per cent to $1,081,400 from $1,089,800 in November, though the average selling price was down 9.28 per cent.

Sales also showed a glimmer of hope, increasing by 1.1 per cent despite being down 48 per cent from December 2021.

TRREB CEO John DiMichele said that there are two opposing forces buffeting the housing market.

“On the one hand, we will continue to feel the impact of higher borrowing costs. On the other hand, record levels of immigration will support demand for ownership and rental housing, while we struggle to come to terms with a housing and infrastructure deficit in the Greater Golden Horseshoe,” DiMichele said in the report.

The real estate organization said sales for the month amounted to 2,232 and contributed to a 2022 sales total of 21,371, 20 per cent below 2021.

The board said it’s typical for December to bring fewer sales and new listings, but the 2,359 properties that hit the Montreal market last month was a level not seen since 2002.

New listings in the month represented a seven per cent decline from the year before, but 2022 still saw two per cent more new properties on the market than in 2021.

Median prices for single-family homes fell three per cent from the year before to $510,000, while condos edged down one per cent to $375,000 and plexes sank six per cent to $690,000.

— With additional reporting from the Canadian Press