- Calling a bottom in housing is notoriously difficult. That said, with our forecast tracking well, we’re retaining our near year-long call that Canadian home sales will bottom sometime in early 2023. The timing of the trough is consistent with the Bank of Canada’s tightening cycle, which we expect to culminate with one additional modest hike (25 bps) in January.
- To be clear, even if activity does bottom in the next few months, sales levels should remain depressed, thanks to the poorest affordability backdrop since the late 80s/early 90s. Indeed, 2023 is likely to mark the weakest sales year since 2001.
- Canadian average home prices are also projected to bottom out in early 2023. We’re sticking with our long-held view that home prices will experience a peak-to-trough decline of around 20%. That is even with a somewhat steeper near-term price decline baked-in versus our September projection, as price growth held up better-than-expected in 2022Q4. Still, quarterly price growth in 2023 should be weaker than what we imbedded in our September forecast, as the Bank of Canada has taken their policy rate even higher than we had previously thought.
- Steep annual average price declines are expected to take place in most of the Atlantic Region, Ontario, and B.C. in 2023. However, declines in the latter two markets will more than retrace the gains made in 2022, which is not the case for the Atlantic. We forecast lesser annual average price declines across the Prairies and Newfoundland and Labrador this year, supported by comparatively decent affordability conditions.
- Growth in Canadian home sales and average home prices should return to positive territory, on an annual average basis, in 2024. By then, inflation should be contained, and the Bank of Canada is expected to have moved rates away from restrictive territory. At the same time, the economy should begin to heal after a weak performance in 2023, with continued robust population growth adding a fillip to demand. These factors should manifest in stronger sales activity, though at a pace that will continue to lag pre-pandemic levels for much of the year. Improving housing demand is also likely to stoke some renewed growth in prices. However, a still-constrained affordability backdrop will be a limiting factor.
- Regionally, broad-based price gains are likely in 2024. However, we expect some mild outperformance in the Prairies and Newfoundland and Labrador as those markets continue to benefit from a favourable affordability gap. In contrast, tougher affordability conditions in Ontario, B.C. and across much of the Atlantic should restrain growth.
- How the supply picture evolves represents a risk to our price forecast. If higher interest rates and economic weakness result in significant amounts of forced selling on the part of homebuyers, price growth could be weaker than we expect.
|Home Sales and Price Outlook|
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.