Canada Mortgage and Housing Corp. is predicting housing prices will continue to drop in 2023, but is warning the fall will do little for affordability.
Patrick Perrier, the housing agency’s deputy chief economist, said in a report Thursday that he expects the national average home price to fall 15 per cent from $770,812 – the peak seen in the first quarter of this year – by the end of the second quarter of 2023.
On an annual basis, he sees prices growing 2.6 per cent in 2022 compared with 21.3 per cent in 2021 and then, declining 6.3 per cent in 2023 and rising 2.1 per cent in 2024.
Mr. Perrier attributed the moves to housing demand slowing as interest rates rise.
Despite the price decline, Mr. Perrier believes housing affordability will not improve because any benefits that can be reaped from lower prices will be offset by higher interest rates and combined with an increasingly competitive rental market.
“Those who are current renters that were planning to purchase a house, they won’t be able to do it, so they’ll stay in the rental market,” Mr. Perrier said in an interview.
“And unfortunately, we might see others that are currently owners that, because of deterioration in their employment and income conditions, might have to sell and go on the rental market.”
Thus, Mr. Perrier said less demand and pressure in the ownership market will transfer to more demand and pressure in the rental market.
To make the housing markets for affordable, he feels more supply is needed and it needs to come quicker to keep pace with demand and take pressure off pricing.
Mr. Perrier sees the lack of affordability occurring as the country heads into a recession by the end of 2022, but added that the downturn will not be as severe as the last and a recovery will begin in the second half of 2023.
In a separate report, Royal LePage lowered its home price expectations on Thursday. It sees prices in the fourth quarter decreasing compared with the same quarter last year and erasing the gains made at the start of 2022.
The real estate brokerage’s new outlook is based on a survey that predicted the aggregate price of a home in Canada in the final three months of the year will drop 0.5 per cent compared with the fourth quarter of 2021.
That’s down from a July forecast that predicted prices in the fourth quarter to be up 5.0 per cent on a year-over-year basis.
Because home prices follow sales volume trends, Royal LePage chief executive officer Phil Soper expects to see further softening in the final months of the year.
“September did not bring the typical seasonal lift in the number of homes trading hands in this country, a clear indication that our housing market continues to adjust to higher borrowing costs,” Mr. Soper said in a statement.
“Our revised outlook has national prices at just below where we ended 2021, erasing the gains made in the first quarter of 2022.”