Looking Back at the Canadian Real Estate Market in 2023
Posted On November 28, 2023
In 2023, the Canadian real estate market experienced several shifts influenced by changes in interest rates. This dynamic relationship has far-reaching implications for potential home buyers, sellers, and investors in Real Estate Canada.
In October this year, the Bank of Canada continued to hold its policy rate steady at 5%. However, its rate hikes in June and July 2023, totalling a 50-basis point increase, contributed to a rise in borrowing costs, impacting the affordability of mortgages and influencing market dynamics.
Expert forecasts suggest that relief from elevated rates may not materialize until early 2024, maintaining the pressure on the real estate market. The market is delicately balanced, and the fluctuating home prices and sales highlight the interplay between interest rates and market dynamics.
Understanding the impact of higher interest rates, potential mortgage affordability, rising demand for housing, and the resulting consequences for homeowners and investors is essential for navigating real estate in Canada. Stay with us as we explore this fascinating landscape.
The Bank of Canada controls interest rates in the country and plays a crucial role in the real estate market. Low rates make borrowing more affordable, boosting homebuyer purchasing power. Conversely, rising rates increase borrowing costs, potentially impacting mortgage affordability.
Let us look at the housing market trends through 2023 so far.
How has Real Estate in Canada Fared in 2023?
The year 2023 began on a challenging note for the Canadian housing market, experiencing a 3% month-over-month decline in home sales in January, reaching a 14-year low in year-over-year sales. This downturn was compared to the market uncertainty of 2019.
On January 25, 2023, the Bank of Canada (BoC) increased the interest rate to 4.5%, signalling a worrisome trend. However, despite this hike, February witnessed a 2.3% month-over-month increase in Canadian home sales, especially notable in the Greater Toronto Area (GTA) and Greater Vancouver.
March and April 2023 marked the first pause in the rate cycle, with the BoC maintaining the rate at 4.5% due to “flat” economic growth and easing inflation. During this period, Canadian housing experienced a significant rally, with national home sales rising in March, surging in April, and jumping again in May, creating sellers’ market conditions.
In June 2023, the BoC resumed rate hikes, raising it to 4.75% due to stronger-than-anticipated GDP and the first inflation uptick in 10 months. Concurrently, Canadian home sales showed signs of stabilizing, increasing by 1.5% month over month.
July saw another rate hike, bringing the rate to a 22-year high of 5%, partly attributed to a pickup in the housing market. The subsequent back-to-back rate hikes contributed to a 0.7% month-over-month decline in home sales in June, with the sales-to-new-listings ratio (SNLR) easing to 59.2%, marking a return to balanced territory.
August continued the downward trend, with national home sales sliding 4.1% month over month, following the July rate hike. The downcast narrative persisted in August, with market activity reflecting the anticipated impact of the rate hike.
In September, the BoC held the rate at 5%, citing the slowing Canadian economy. Despite this, the bank indicated the possibility of further rate hikes. Finally, on October 25, 2023, the BoC decided to retain the rate at 5%, further emphasizing the ongoing uncertainty in the economic landscape.
Canadian Real Estate Market in Oct 2023
In October 2023, the Canadian real estate market exhibited resilience as home prices continued to climb steadily, reaching a national average of $656,625—an impressive 2% increase year-over-year and a marginal 0.2% uptick from the previous month.
Breaking down provincial trends, British Columbia maintained its lead with the highest average home price at $968,786, reflecting a substantial 4% year-over-year increase. With the price of a Greater Vancouver home costing a steep $1,299,503, houses for sale in Vancouver remained elusive for the average Canadian.
Alberta also demonstrated robust growth, registering an impressive 6% year-over-year increase. In the Atlantic provinces, Nova Scotia and New Brunswick followed suit with substantial growth.
Despite variations across provinces, home prices remained higher year-over-year in nine out of ten Canadian provinces.
During this period, the Canadian Real Estate Association (CREA) reported a decline in national home sales and a decrease in newly listed properties, leading to a shift in market dynamics. While the MLS® Home Price Index (HPI) experienced a slight decrease, the average sale price showed a notable year-over-year increase.
Ripples in the Real Estate Market
Rising interest rates send shockwaves through the housing market, particularly impacting mortgage affordability.
Increased borrowing costs pose challenges for potential buyers, hampering their qualification for mortgages or property acquisitions. This affordability crunch may lead to a drop in housing demand, affecting both the first-time home buyer and existing homeowner looking to upsize their house.
The shifting dynamics could even prompt a slowdown in housing price appreciation or, in more severe cases, a decline in property values. This ripple effect extends to the rental market, with diminished homeownership affordability driving more individuals toward rentals, potentially increasing rental prices.
The additional strain on homeowners with variable-rate mortgages may lead to financial challenges, including an uptick in foreclosures or forced sales, impacting both the individual and the broader Canadian economy.
In 2023, the Bank of Canada maintained a policy rate of 5%, citing concerns about the limited response of home prices to past rate hikes.
The critical issue of housing supply remains a significant factor affecting the Canadian real estate market. Addressing this supply shortage is paramount to restoring affordability, as interest rates alone may not suffice.
Staying informed about economic indicators market trends, and utilizing reliable resources is essential for informed decision-making in the ever-changing real estate landscape. Navigating these challenges may be easier by consulting real estate professionals. For further insights, feel free to contact us.