Despite a strong start to the year, real estate in 2022 was largely defined by a lack of affordability, spurred by one of the most polarizing interest rate hike cycles in Bank of Canada (BoC) history. As a result, many buyers and sellers found themselves staunchly sidelined, even as home prices began to come down.

But with the new year comes renewed hope and a chance for Canadians to reenter the real estate market… albeit with adjusted expectations.

So what’s in store for real estate in 2023? Experts are forecasting a lot of the same, but also some reprieve on the (distant) horizon.

Prices May Finally Bottom Out

Canadian housing markets were in correction mode for the better part of 2022, and while the worst of the correction seems to be in the rearview, many major markets are still seeing downturned conditions. With that said, prices are yet to come down in a meaningful way, dropping just 0.98% month over month in November, according to data from the Canadian Real Estate Association (CREA).

This kind of gradual decline is expected to persist into 2023.

An affordability report by RBC’s assistant chief economist Robert Hogue, published in December, forecasted that the national benchmark price will fall 14% from its 2022 peak by spring. Hogue further stipulated, “it will likely take years to fully reverse the tremendous deterioration that took place since 2021.”

READ: Canada’s First-Time Homeownership Prospects Have Gone from Bad to Worse

Hogue also emphasized that price depreciation will vary from market to market, saying that the more significant corrections in average home prices will be among properties in smaller markets, such as markets across the Prairie provinces, while affordability will continue to be “overstretched” in BC and Ontario.

BoC Will End its Rate Hike Cycle

December marked the BoC's seventh consecutive interest rate increase, however, the hike cycle has done little to bring down inflation. Canada’s inflation rate was unflinching in November, falling just 0.1% from the month prior.

With inflation remaining stubborn, many experts are convinced that we haven’t seen the last of interest rate hikes -- the next rate decision is scheduled for January 25 and the consensus seems to be an increase of 25 basis points -- however, they also agree there is an end in sight.

Moshe Lander, Senior Economics Lecturer at Concordia University, told STOREYS in a previous interview that he anticipates the Bank will have “more of a steady hand” in the year to come.

“They do need to take a pause at some point," he said. "They need to at least sit out one meeting and just say, ‘we want to see what happens,’ whether that comes in the first meeting or the second meeting of 2023."

As for what this will mean for prospective buyers -- Jill Oudil, Chair of CREA, stated in a recent report that it could actually create favourable conditions.

“… while the interest rate situation facing buyers is unlikely to improve over the first half of 2023, it is more likely to remain the same,” she said. “However, it may also be the first spring market in a number of years where buyers have a shot at not being out-competed for properties that catch their eye."

Mortgage Carriers Will Feel the Rate Pain

Regardless of the BoC’s next moves, mortgage carriers will be in a tight spot in 2023.

In an interview from December, Ron Butler of Butler Mortgage talked to STOREYS about the detriment of further interest rate hikes to existing mortgage carriers, even if the next increases are relatively moderate.

“The house inflation is 10 times, therefore the mortgage inflation is 10 times,” he said. “People who have a primary-based mortgage product or HELOC are going to have difficulties with the continued escalation of their payments.”

The situation won’t be much better for those who are mortgage shopping. With runaway inflation and high rates bleeding into 2023, both variable and fixed-rate mortgage carriers are expected to remain unattractive for the rest of the year, says Butler.

Immigration Will Heat Up Housing Demand

In 2022, Canada welcomed a record-breaking number of new permanent residents -- 431,645, according to an announcement released earlier today. That figure trumped a previous high of 405,000 new permanent residents in 2021.

Moreover, the federal government’s latest immigration targets are the loftiest in Canadian history. Under the 2023–2025 Immigration Levels Plan, Canada will welcome 465,000 new permanent residents in 2023, 485,000 in 2024, and 500,000 in 2025 for a total of 1.45M new permanent residents over the next three years.

READ: Canada’s Latest Immigration Plan is the Most Ambitious Yet. Can Housing Targets Keep Up?

With the government upping the ante on immigration housing demand is bound to intensify, injecting the market with urgency that was lacking in 2022 due to the high cost of borrowing. And with new housing supply being offset by lofty development costs and existing inventory remaining scarce, Canadians, new and existing, will continue to turn to the rental market, compounding the affordability challenges already facing the sector.

Real Estate News