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GTA home prices will continue to decline in 2023, but high interest rates dash hopes for first-time buyers

Home prices in Canada will decline into 2023 giving buyers more negotiating power, a new Re/Max report says. But persistently high interest rates will continue to dash hopes for first-time home buyers and dampen sales activity.

Average residential home prices are expected to decrease by 3.3 per cent in 2023, with the biggest declines expected in Ontario and Western Canada, while Atlantic Canada will see an increase, says a Nov. 29 Re/Max report.

The price decline will lead to a balanced market — when demand is in line with supply — in 60 per cent of regions in Canada.

The average sale price in the GTA is forecasted to drop by almost 12 per cent in spring 2023 from the February 2022 peak, the report adds.

“Most of the price adjustment has already happened,” said Cameron Forbes, Re/Max Realtron Realty broker.

The average selling price for a home in October was $1.09 million, which will drop to $1.05 million in 2023, he added.

“We expect prices to come down a little bit more, around three per cent, but the worst is behind us.”

Single-detached homes remain the dominant housing type GTA buyers are interested in with a pickup in sales activity taking place since the summer, after prices dropped significantly.

But some housing experts say the Re/Max forecast is optimistic. Economists have predicted national home prices will drop a further 10 to 15 per cent by spring 2023. And in the GTA, home prices have already fallen by almost 20 per cent since the February 2022 peak.

The Re/Max report calculates the GTA home price decline by taking the average October price and comparing it to the average GTA sales price for all of 2022, which is $1.19 million — showing an 8.5 per cent drop in sales price.

“Considering how high interest rates are, their forecast is quite optimistic. We forecast there will be another drop of about 10 per cent. The Re/Max forecast for the GTA is also more modest because they’re using the annual average,” said Stephen Brown, senior Canada economist, Capital Economics — an independent economics research firm.

The Bank of Canada is set to hike the overnight lending rate by another 0.25 or 0.5 percentage point on Dec. 7, raising interest rates on mortgages again. Economists predict interest rates will remain elevated in 2023, continuing to put downward pressure on home prices.

Since March 2022, the Bank of Canada has hiked the overnight lending rate six times taking it from 0.5 per cent to 3.75 per cent. Mortgage rates have gone from historic lows of 1.5 per cent to over five per cent, scaring off prospective buyers.

“Prices won’t drop as quickly as what we saw in the first half of 2022, but it’s good to go with what the majority of economists say for where home prices will go, so we’ll see a further decline of more than three per cent, but it will be gradual next year,” said John Pasalis, president of real estate brokerage Realosophy.

However, there are some advantages to higher interest rates placing downward pressure on home prices, Forbes said.

Home buyers face less competition when looking for a property and can put conditions on an offer, such as a home inspection, which was almost impossible to do during the homebuyer feeding frenzy of January and February 2022.

In Toronto, many homeowners looking to buy a bigger property already have substantial equity in their home, making the purchase feasible. The same can be said for young families in condos who bought before the pandemic, Forbes said, as a condo will have appreciated in value over the course of three or more years.

Because there is less competition it allows buyers to take their time when considering purchasing a property. Homes are now on the market for 45 to 90 days, indicating a more balanced market, said Christopher Alexander, president of Re/Max Canada.

However, for first-time home buyers, it will be difficult entering the market when interest rates are high and home prices for many are still unattainable, Brown said.

“When we look at affordability metrics, it’s the highest it has been since the ‘80s and early ‘90s,” he said. “Buying a home is still expensive and only possible for a small share of the population. It will be a struggle for many to afford a home,” he added.

Economists also predicted there would be more forced sales — where property owners sell quickly due to financial distress — but many have instead placed their property on the lucrative rental market, Brown said.

But even with a more balanced market, there won’t be a flood of activity any time soon, experts say. Sales and listings are both at 20 year lows, meaning there is little inventory and demand, which is what’s bringing “some stability” to the market, said Pasalis.

“Moving into the new year I don’t expect those numbers (for sales and listings) to change that much, buyers won’t be rushing into the market any time soon,” he said.


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