If you have checked the housing market in Canada in the last few years, you are already aware of the topsy-turvy condition of the market. After the outbreak of Covid-19, Canada’s real estate market has considerably slowed down with a sharp drop in housing investment. While the real estate market in Ontario experienced record-setting gains in the early days of the pandemic, several small cities felt some of the largest losses in 2022.
In Ontario, property values fell 22 percent in Cambridge, which is the greatest drop so far. As the real estate market has cooled down drastically, the question that pops up in our mind is: Could the real estate bubble in Ontario burst anytime soon?
Some experts believe that there won’t be a housing market crash in 2023. In fact, they anticipate that there might be an increase in sales in some areas. Rick Sharga, Executive Vice President of market intelligence at ATTOM Data says, “I think we’re more likely to see the market cool.” So it seems there is some hope that home prices might dip in 2023 and that homebuyers will be able to re-enter the market. We have to wait for some time to see how far the home prices drop.
What caused the decline in housing sales?
The slowdown in housing sales is a result of the Bank of Canada’s high interest rates. As the central bank has been struggling to battle sky-high inflation, it announced a 0.25 percent rate hike on January 25, 2023. This hike, which is the eighth hike over the last year, has brought the policy interest rate of the Bank of Canada to 4.5 percent.
The soaring interest rates are posing challenges to potential homebuyers and sellers by making homes unaffordable. Mortgage rates are also responsible for the decline to a certain extent. Reports show that there has been a drop of 25 percent in sales in 2022 from 2021.
As a result of soaring mortgage costs, a large number of borrowers are at risk. With rising borrowing costs, housing sales and prices are struggling. However, 2023 won’t be as catastrophic as early 2022 as per reports shared by experts.
Where will the Ontario housing market head in 2023?
While sales dropped in the local markets from August to September last year, sales across the country were up 1.3 percent in October. This increase in sales after a slowdown gives us hope that this year the sellers and buyers are going to return to the housing market.
As the bank expects the current inflation rate to fall to around 3 percent by the middle of 2023 and 2 percent in 2024, it announced in January that it would now pause further changes to its policy rate. Governor Tiff Macklem said, “We are pausing interest rate hikes to assess whether we’ve raised interest rates enough to get inflation all the way back to target.” This pause might bring buyers and sellers back into the market.
Randall Bartlett, Senior Director of Canadian Economics reported that the pause in rate hikes is cutting down some mortgage rates. With the mortgage rates stabilizing, we can expect the real estate market in Ontario to heat up again soon. TD Economics has also changed its previous housing market projection and predicted increased sales and a drop in prices in 2023, followed by a rebound in the next year. So we can already spot a silver lining amidst the darkness.
What is the expected average house price in Ontario in 2023?
In early 2020, the average house price in Ontario was under $600,000. In September 2021, the price peaked and was over $880,000. In contrast to the housing market in 2022, most regions in Canada are about to experience more balanced conditions this year owing to the current economic conditions. The average house price in Canada for the month of January 2023 was $612,204. There is anticipation that there would be a further decline in prices across Ontario in the coming months. We might not see sharp decline in house prices. The prices are, however, predicted to drop slightly.
Will the housing market in Ontario crash?
As house sales and prices will continue to fall in the next few months, this shift will help the Ontario real estate market to bounce back. Home prices are expected to drop 25 percent from their peak by the end of 2023. With a drop in prices, affordability is hopefully going to improve and housing activity is supposed to return to its pre-pandemic levels by the end of 2024. So, it is unlikely that there would be a real estate market crash anytime soon. Let us hope that these changes set the stage for recovery and revitalize the real estate market in Ontario.
If you are planning to buy a house in Ontario or considering selling your property, ASB Real Estate is the best resource for you. Get in touch with us today and become our happy client!
