December housing recap: What's in store for Canadian home prices in 2023?

The Canadian housing market chilled significantly over the course of 2022, as a series of steep interest rate hikes from the Bank of Canada created some of the toughest affordability conditions seen in decades.

With the benchmark cost of borrowing spiking from a pandemic low of 0.25% in March 2020 to 4.5% today, would-be homebuyers have remained on the sidelines, contributing to significant declines in home sales activity across Canada, as well as a dip in home prices.

The good news is that mortgage rates are anticipated to stabilize this year, as inflation appears to be improving and the central bank has signalled it will shift to a rate hold stance for the foreseeable future. Will that lead to recovery in the housing market? Let’s take a look at what the latest data indicates.

2022 ended on a frigid note

The December report from the Canadian Real Estate Association (CREA) provides insight into just how much the market slowed last year; while national home transactions were up 1.3% on a monthly basis, they came in a whopping -39.1% below December 2021 levels, with 23,523 homes trading hands. 

That’s had a significant pull-down effect on prices; the national average (non-seasonally adjusted) home price of $626,318 is a -12% year-over-year decrease. The MLS Home Price Index, which strips out the extreme low and high ends of the market to reflect the price of a typical transaction, is down -7.5% annually.

In all, sales and prices are -59.5% and -23.3% below last February’s market peak; that reflects a drop of 34,686 transactions and a dollar value of $190,402, respectively.

However, declines are being felt more acutely in some regions than others; prices fell the most in Ontario and parts of British Columbia, but remained relatively untouched in the prairie markets and parts of the Maritimes.

As well, the market continues to grapple with extremely low supply, which kept it from slipping entirely into buyers’ market conditions. The number of newly-listed homes fell -6.5% from December, leading to one of the lowest supply levels on record, at 4.2 months of inventory. 

With new listings down by quite a bit more than sales on a month-over-month basis, the sales-to-new listings ratio (SNLR) tightened to 54.4% compared to 50.2% posted in November, reports CREA; the long-term average for this measure is 55.1%. This is close to where the ratio was in the months leading up to the initial COVID-19 lockdowns, and remains nearly a full month below its long-term average.

Shaun Cathcart, CREA’s Senior Economist, says mortgage rates will be the deciding factor this year in terms of the market’s direction; currently, the best five-year fixed mortgage rate in Canada is 4.39%, with the best five-year variable mortgage rate at 5.55%.

“The housing market story of 2022 was about high inflation and rising interest rates. The 2023 market will depend on the timing and extent those factors move back in the other direction,” he wrote in CREA’s December data release. “Demand for housing continues to grow and supply remains the biggest issue across the entire spectrum. Whether that plays out in the rental market in 2023 or shifts back over into the ownership space is a matter of how quickly the Bank of Canada can get inflation under control and starts turning the dial back down on borrowing costs.”

A look at what’s to come in 2023 and 2024

CREA has also released an updated forecast for home sales and prices for 2023 and 2024; taking into account that sales have been “more or less stable” since this past summer, the market may have hit its bottom in terms of price declines, especially as interest rate hikes come to a halt.

“With significantly higher borrowing costs, it’s not surprising prices have mostly cooled from their peaks in more expensive markets within Ontario and British Columbia. Prices have been holding up much better in Alberta, Saskatchewan and Newfoundland and Labrador, with Quebec and the Maritime provinces landing somewhere in between,” states the forecast report, adding that today’s home prices remain well above that of summer 2020.

However, CREA is clear that 2023 won’t herald a market recovery; rather, it will mark the “start of a turnaround,” given the tough affordability conditions facing first-time homebuyers. However, more buyers are expected to return to the market after rates stabilize, and will enjoy slightly lower prices and fewer bidding wars once they do so.

According to CREA, a total of 495,858 homes are forecast to sell this year – a -0.5% decline from 2022 – with the average home price to fall another -5.9% to $662,103. Things will pick back up in 2024, with a forecasted 546,625 sales, an increase of 10.2%; that’s still below 2020 and 2021 figures, but indicating the market is returning to “normal”. The average sale price is then forecast to rise by 3.5% to $685,056, putting it back on par with 2021 levels.

The provincial breakdown:

Ontario:

Canada’s most populous province has absorbed some of the steepest market declines over the course of 2022, and the final month of the year was no exception; a total of 7,516 homes traded hands, a drop of -41.3% from the same time frame in 2021. The average price responded with a 12.2% YoY decrease, to $812,338. Currently, the best mortgage rate in Ontario is 4.39% for a five-year fixed, and 5.55% for a five-year variable rate.

However, supply conditions are still quite tight, keeping the market in balanced territory despite such hefty sales declines – a total of 9,501 new listings came to market in December, a -9.5% decrease, and the overall months of inventory sits at just two. That’s kept the province’s sales-to-new-listings ratio – a measure of how competitive the market is – at 53%. According to CREA, a ratio within the range of 40 - 60% generally indicates balanced market conditions, with above and below this threshold reflecting sellers’ and buyers’ markets, respectively.

Over the entirety of 2022, the Ontario market saw 182,854 sales – a year-over-year decline of -32.3%. CREA expects this to stay relatively flat this year with 181,263 sales (-0.9%), before picking up strongly in 2024 with 207,672 transactions – an increase of 14.6%.

The average home price in Ontario was $931,952 in 2022, up 6.8% from the previous year. However, that’s anticipated to fall this year by -8.7%, to an average of $850,876. Prices will stay roughly in this range throughout 2024, rising 1.1% to $860,602.

Alberta

Alberta’s relatively cheaper home prices have made it an attractive draw over the past few years, for both investors and homebuyers who made the move from other provinces. However, activity still fell in Wild Rose Country compared to the boom year that was 2021; sales were down -32.2% in December with 3,296 transactions. The average price, meanwhile, rose 2.8% to $429,496. Currently, the best mortgage rate in Alberta is 4.39% for a five-year fixed, and 5.55% for a five-year variable rate.

However, prospective sellers were still shy to put their homes on the market given the higher interest rate environment; 3,498 homes were listed last month, down -17.5%, contributing to just three months of inventory. That kept market conditions firmly in sellers’ territory, with an SNLR of 68.1%.

From a big picture perspective, though, sales remained fairly steady from the previous year with 84,050 transactions – down just -1.8%. CREA forecasts this will rise to 82,383 this year (up 2.7%). The average price came in at $447,454 in 2022, up 5.3% from 2021; this will remain roughly unchanged over the next two years, rising 1.1% this year to $452,313, and 1.8% next to $460,472.

British Columbia

It’s been a decidedly tough year for Canada’s western-most province and priciest housing market; steeper interest rates knocked many would-be buyers out of the running, with the December numbers reflecting a -48.9% year-over-year drop, with just 3,522 homes trading hands. The average price came in at $907,456 (-11.9%), while new listings absolutely plunged, falling -10.7%. Currently, the best mortgage rate in BC is  4.39% for a five-year fixed, and 5.55% for a five-year variable rate.

However, tighter supply wasn’t enough to counter chilly buyer interest; the SNLR in the province remains balanced, at 53%, while inventory sits at 3.8 months.

Overall sales are down -35.2% for 2022, with 80,898 transactions – CREA is calling for this to improve by 3.7% this year, up to 83,856 sales. 2024 is anticipated to be a strong year, though, with a 15.3% rebound at 96,648 sales.

The BC average home price came to $996,694 last year, marking a 7.5% increase from the year before. However, 2023 should bring some price relief, falling -7% to an average of $926,705. This will tick back up by 5.6% in 2024, though, to $978,478.

Quebec

There was considerable market correction in “la belle province” this year, with the December market ending on a frosty note. Sales came in at 4,615, marking a year-over-year decline of -36%. Meanwhile, the average price dipped -0.9% to $458,792. Currently, the best mortgage rate in Quebec is 4.49% for a five-year fixed rate and 5.55% for a variable.

However, tight supply issues have kept Quebec in sellers’ market territory, with an SNLR of 68.8%, and 3.6 months of inventory, as new listings fell -6.3% to 4,935.

Overall, sales fell -20.4% in December with 87,185 homes selling. CREA expects that to remain relatively unchanged this year with 87,878 transactions, up 0.8%, and up 6.9% in 2024 with 93,936.

Over the course of 2022, the average home sold for $483,573 (up 10.3%). That’s expected to ease this year, though, down -6.5% to $451,902, and next, down another -2.5% to $440,663.

The bottom line

Despite some relief on the horizon, affordability conditions will remain challenging for homebuyers this year and next. However, those waiting on the sidelines for stabilizing interest rates may be rewarded, as the Bank of Canada is expected to end its hiking cycle this quarter, and home prices remain considerably lower than last year in most markets. Those considering getting into the market this year can consult a mortgage broker to explore their various financing options, as mortgage rates remain elevated from a historical perspective.

Also read:

• The December inflation numbers are in – and they could lead to a rate hold

• Why a strong labour market may impact your mortgage rate

• Should I buy a house in a recession?