(Bloomberg) — The rapid decline in Canadian home values will come to an end in 2023 as a lack of supply reasserts upward pressure on prices, the country’s housing agency said in its annual forecast.
Prices will start to rise by next year as the pace of new home building fails to keep up with high levels of immigration and a quickening economy, Canada Mortgage & Housing Corp. said in its report. There’s already some evidence a recovery in home prices is underway: In March, the national benchmark rose for the first time in a year.
Canadian home prices posted their worst annual drop on record last year as the Bank of Canada enacted an aggressive campaign of interest rate hikes to combat inflation. The central bank paused those efforts in March and the housing market has begun to show signs of life, but buyers are confronting a marked lack of homes for sale.
The country’s housing agency predicts the annual average price will end 2023 below last year’s levels, but focused its report on the risk of housing becoming increasingly unaffordable for too many Canadians with the prospect of further price declines and a steep recession receding.
“Affordability will continue to deteriorate through 2023, in both the ownership and rental markets,” Bob Dugan, CMHC’s chief economist, said in a press release. “With demand for housing still well outpacing new housing supply, affordability challenges will persist for owners and renters.”
The agency forecasts Canada’s average annual home price will end 2023 at C$643,325 ($472,581) from C$703,875 last year as the economy risks a “mild recession” as a result of the central bank’s interest rate hikes. However, that will also prompt a sharp drop in the pace of new home construction, exacerbating existing housing shortages in cities like Vancouver and Toronto and contributing to a rebound in prices the following two years, the agency said.
In Toronto and Vancouver, there are already signs of sales and prices picking up. Those cities may be leading a recovery process, which should see prices bottom nationally between April and June, before beginning to rise again in the second part of the year, Dugan said on a conference call with reporters.
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