After 22 years in the Calgary office of a global commercial real estate firm, Steve Vesuwalla started his own company, Clearview Commercial Realty, in 2019. A year ago, he established Clearview Industrial Fund, with all capital raised though Alberta investors.
The price of buying a home in Ontario dropped from its lofty heights during the past year, and the question for 2023 is whether the downward trend will continue.
The Canadian Real Estate Association (CREA) benchmark price of a home in Ontario — a measure that combines sale prices of condominiums, attached and detached houses across all markets in the province — peaked at $1.08 million in March of 2022.
That was a staggering 64 per cent leap in just two years, from the start of the COVID-19 pandemic.
CREA’s benchmark figure for Ontario has since fallen by nearly 20 per cent, but even that sharp decline only takes prices back to the level they were at in September of 2021.
How much lower will home prices in this province go? With the number of homes bought and sold monthly now lower than it’s been per capita since the mid-1990s, when will the real estate market start to pick up again?
CBC News surveyed real estate experts and analyzed published forecasts to give you this preview of the Ontario housing market for 2023.
Overall, real estate analysts generally expect home prices to continue to fall, but not a lot further than they already have.
Rishi Sondhi, of TD Economics, forecasts prices in Ontario will decline through early 2023 but bottom out in the second half of the year.
“We are expecting further downside [to prices] but less relative to what we’ve seen so far,” said Sondhi in an interview.
“We think that the bulk of the correction … is behind us.”
That’s partly because there are some signals that the bulk of the Bank of Canada’s interest rate hikes are behind it. The central bank raised its standard-setting benchmark rate seven times in 2022 in an attempt to tackle inflation
Condo projects could be cancelled
Randall Bartlett, senior director of Canadian economics with Desjardins, says it’s an open question when Ontario home prices will stop dropping because various factors on the supply and demand side are pulling in opposite directions.
Those higher interest rates have been the biggest factor dampening demand. However, Bartlett points out employment levels remain strong and immigration numbers are expected to rise, fuelling demand for housing.
On the supply side, many property owners are reluctant to list their properties given how the prices dropped, yet many investors could be forced to sell due to the higher carrying costs of those high interest rates.
There are also signs that the recently rapid pace of new home construction is slowing. The Canada Mortgage and Housing Corp. (CMHC) recently warned that in the Greater Toronto Area, the combination of a sharp drop in condo pre-construction sales, higher building costs and higher interest rates “could lead to project cancellations or delays in project launches.”
“We’re in a very different environment,” said Bartlett. “Demand has cooled off, prices have come down, interest rates are higher.”
He says this could have an impact on the supply of new housing coming on the market in the latter half of 2023.
Mark Ostland, a real estate expert with Meridian, Ontario’s largest credit union, says if the Bank of Canada is done raising rates, that will give more confidence to potential buyers.
Volume of listings expected to remain low
“We are in what I call ‘even-steven times’ at the moment,” said Ostland in an interview.
“On the one hand, we’ve got more affordable home prices than we’ve seen in the last couple of years. But on the other hand, we have the continued rising interest rates that are affecting buyers’ ability to qualify for the mortgage amount they need.”
Real estate analysts generally believe the volume of listings and sales in Ontario will remain low for some time to come.
“People really don’t want to list their homes when sales and prices are falling, for obvious reasons, and so far, that factor is sort of winning out and keeping supply relatively subdued,” said Sondhi.
Every month since June, home sales numbers in the Greater Toronto Area have been at their absolute lowest in more than a decade — with the exception of the lockdown-affected period in the spring of 2020.
“Sharply higher interest rates and the considerable loss of affordability continue to challenge buyers. And we think they will keep the market quiet for some time to come,” said RBC economist Robert Hogue in his housing market report in December.
On the price side, Hogue noted that Toronto-area prices have fallen 18 per cent from their peak and said “any further depreciation is likely to be more incremental.”
GTA vs. rest of Ontario
ReMax, one of Canada’s largest real estate firms, forecasts prices in the Greater Toronto Area will decline to their 2021 levels, a roughly 11 per cent drop from the average this year.
There’s debate about what will happen to housing markets elsewhere in Ontario that saw astonishingly high run-ups in prices over the past two years.
“Our view is that markets outside of the GTA actually have further to fall than the GTA has,” said Bartlett.
Ontario’s smaller cities have a greater proportion of houses to condos than in the Toronto area and that’s one reason why they remain more vulnerable to further drops in 2023: Prices for condos have been somewhat less volatile than for houses.
ReMax’s 2023 real estate outlook predicts average price declines of up to 15 per cent in London, Kitchener-Waterloo, Barrie, and the Georgian Bay area, while forecasting modest price increases of two to eight per cent in the rest of the province, including Ottawa, Hamilton, Windsor and Sudbury.
Nationally, the CMHC is forecasting the average sale price across Canada to continue to decline until the second quarter of 2023.
The coming year will provide an early test of Premier Doug Ford’s promise to pave the way for 1.5 million new homes to be built in Ontario in a decade.
The Ford government has used the housing supply crunch as its justification for recent moves to limit what municipalities can charge for development fees, weaken the powers of conservation authorities and open up pockets of the Greenbelt to housing.
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Bank of Canada comments offer light at the end of the tunnel for real estate, mortgage markets, experts say
Canada’s struggling real estate sector is breathing a sigh of relief, but it wasn’t so much the size of the Bank of Canada’s Jan. 25 rate hike as the language that came with it that was cause for optimism.
That’s because while the central bank boosted its benchmark overnight interest rate by 0.25 basis points to 4.5 per cent, its eighth consecutive increase, it also signalled it would put the hiking cycle on pause — at least for now.
“A 25-basis-point increase or no increase was what we needed, along with the kind of language … that indicated we were essentially where we needed to be” Royal LePage CEO Phil Soper said in an interview. “What’s important at this stage is that we’ve clearly come to a point where interest rates aren’t going to be in the news.”
Soper said the realization that rate hikes will be stopping or slowing should draw what he called the “missing transactions” — those with the capacity to buy but who have remained on the sidelines — back into the market, though it may take some time.
Those buyers, he said, have been reluctant because they understand the link between rising rates and prices, and “they don’t want to buy a house today that will be worth less tomorrow.”
Having some price certainty will make it easier for them to enter the market, but they’ll still need to be comfortable knowing they are paying five or six per cent on their mortgages while others are locked in at two per cent.
“There’s still many, many people out there with two per cent mortgage rates. Your sister or your cousin might have a two per cent mortgage rate but you’re going to have to pay five,” Soper said. “This will harm consumer confidence until the market has more time to adjust to it.”
As a result, he said he saw a “muted recovery” in the cards for the spring.
The pause also signals a light at the end of the tunnel for variable-rate holders, according to James Laird, Co-CEO of Ratehub.ca and president of mortgage lender CanWise, even if it means another dose of short-term pain.
Clearview Commercial Realty’s investment funds help expand portfolio
Mission 19 is a luxury 67-unit apartment block that will welcome tenants this fall, designed by Gravity Architect and being built by Triumph Construction in the trendy Mission District at 320 19th Avenue S.W.
Last month, Vesuwalla embarked on a fourth — the Clearview Alberta Opportunity Fund — with a goal of raising a pool of equity that will allow his company to act quickly when commercial real estate opportunities arise.
Acumen Capital Partners handled the equity raise and the first round of financing closed last month. A second round is scheduled to close at the end of this month.
The first purchase — in cash — by the new fund is the former Economy Glass building at the corner of 17th Avenue and Centre Street S.W. in the Beltline district.
The 11,500-square-foot building on a .33-acre site has drive-in overhead/roll-up doors, existing office and retail showroom improvements, and highly usable and accessible lower level space.
Vesuwalla is working with a restaurant group and fitness operator to take over the spaces, but the location is ideal for future development as a multi-storey commercial-residential building. That will be planned on the completion of the extension of 17th Avenue across Macleod Trail, giving direct pedestrian and vehicular link access into the Stampede grounds, the BMO Convention Centre expansion and the Victoria Park/Stampede LRT station redevelopment.
Doug Johannson, executive vice-president at Clearview who joined the company in 2021, has also been busy completing some commercial real estate deals.
Explosive growth in development of commercial real estate in the Balzac area has continued with the sale of 33.85 acres on the south side of Highway 566.
Located between the successful developments of High Plains and Wagon Wheel industrial parks, it was sold by Johannson on behalf of the Abbotsford, B.C., owner to a local developer for $8.8 million.
He was also the broker for the sale of a 17-acre parcel in Frontier Park to Remington Development, and has an unconditional contract to close on the sale of a 43,500-square-foot building on Enterprise Way, between Stoney Trail and the eastern city limits.
Vesuwalla and Johannson continue to look for interesting value-added opportunities to increase Clearview’s rewarding portfolio.
President and CEO of Bow Valley College, Dr. Misheck Mwaba, has been appointed to the board of the Calgary Chamber of Commerce for a three-year term. “I look forward to working closely with the board on strategic initiatives to address the evolving needs of the Calgary business community,” says Mwaba. “I am acutely aware of the urgent need to develop and retain a world-class talented workforce, nurture a diversified economy and grow our digital ecosystem. Mwaba is a champion of Workforce Integrated Learning (WIL), re-skilling and up-skilling, and takes pride in liaising with Calgary businesses to understand their labour demands.
David Parker appears regularly in the Herald. Read online at calgaryherald.com/business. He can be reached at 403-830-4622 or by email at email@example.com.
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