Carrying on with the tone it took in its Quarterly Forecasts earlier this year, the Canadian Real Estate Association has downgraded its expectations for the rest of 2023.
Interest rates and inventories are seen as the key factors influencing the market right now and into the foreseeable future.
Watching the BoC with Interest
CREA is watching the Bank of Canada, while the Bank is watching the rest of the economy. The current thinking is, the BoC will likely hold its trendsetting interest rate steady into the spring of next year. But there is the underlying chance that there could be one more increase, depending on the broader economic data. CREA continues to look for signs from the Bank that rates will start to go down.
Inventories Improve
Housing inventories have started to build and have been increasing throughout the third quarter. September saw a 6.3% increase in new listings, compared to August. New listings are up 35% from the 20-year low they hit at the end of the first quarter.
The national sales-to-new listings ratio eased to 51.4% compared to 55.7% in August and a recent peak of 67.8% in April. The long-term average is 55.2%. Available inventory stands at about 3.7 months. The long-term average is about 5 months.
The somewhat better availability has not triggered an increase in buying.
“With the inventory of homes for sale still historically low amid huge demand for housing in Canada, what happens next will depend on interest rates. Whether that means uncertainty about the possibility of further hikes, or just the cost of borrowing money right now, neither of these will be resolved for would-be buyers anytime soon. As such, expect a quieter than normal winter with all eyes on the Bank of Canada,” said CREA’s Senior Economist, Shaun Cathcart.
Sales Slip, Prices Dip
CREA expects about 450,000 residential properties to change hands by the end of the year. That is a 9.6% drop from 2022. The association points out, though, much of that decline is the result of slowdowns in British Columbia and Ontario, which represents a narrowing of the broad-based reduction that was noted in the July report.
The national average home price is forecast to decline by 3.3% on an annual basis to a little less than $680,700 in 2023. Again, the drop is due to the markets in Ontario and British Columbia. Several provinces are expected to post small price increases including, Alberta, Quebec and most of Atlantic Canada.
Modest Improvements for 2024
Sales are forecast to recover by 9.0% in 2024, with about to 490,000 units changing hands. This is based on CREA’s expectation that interest rate uncertainty will diminish and the real estate market will move back toward long-term trends.
CREA has lowered its outlook for price gains for 2024. It is forecasting a modest 1.5% increase next year, bringing the national average price to nearly $691,000.