The Canadian housing market in 2022 was affected by increasing interest rates and high inflation. The prediction of the 2023 market is based on the timing and the efforts by the key players to reduce interest rates and tame inflation. However, the current trend is still affected by an increase in demand and a limited supply which is expected to continue pushing the prices up. Although some experts think the market is reaching a saturation point and prices will begin leveling off and decreasing, others remain skeptical. Several factors will determine the trends in the Canadian housing market in 2023. A better understanding of the current situation requires an analysis of the driving forces, comparing local and national rates and the overall effect on the general economy.
The Canadian Housing Market has seen a significant price increase in recent years from 2020 to 2022. Data from the Canadian Real Estate Association (CREA) show that the national home prices reached a record high, with an increase of 4.1 % as of November 2022. This followed a 5.1 increase in the previous month (Grigoryeva & Ley, 2019). This increasing trend has been driven by a combination of factors such as low-interest rates, strong demand for housing, and a limited supply of houses due to construction delays and increased population.
According to the Bank of Canada quarterly monetary policy report, the borrowing costs for homes will likely increase sharply from March 2023 after the Central Bank of Canada increases the interest rates. The increase in interest rates to 3.75% over the past year has affected residential investment (Andrle & Plašil, 2019). Residential investment, such as constructing new buildings, renovations, and ownership transfer costs, is expected to weaken through the first half of 2023, albeit at a minor degree than in 2022.
The trends in housing prices differ in terms of geographical location. National and local-level prices sometimes follow different trends because of different market conditions. Areas such as Vancouver and Toronto have higher prices than other regions (Grigoryeva & Ley, 2019). City-level and national-level prices sometimes move in different directions; as local market conditions can vary. Some areas, such as Toronto and Vancouver, have traditionally seen higher prices than other regions, while other areas may be experiencing more moderate price increases or even decreases (Grigoryeva & Ley, 2019). The difference in prices between the two locations is because land closer to downtown is more expensive and has a high growth potential. Thus retailers are willing to spend vast amounts on securing leaseholds.
Housing price trends are determined by factors such as low-interest rates, strong demand for housing, limited housing supply, and other economic factors. To support the economy, the Bank of Canada must reduce the interest rates in order to support the economy. Lower interest rates make borrowing cheap and more accessible for buyers and reduce the rate of inflation (Sardar & Sardar, 2021). Canada also experienced an increased demand for housing after the Covid-19 pandemic, with more people looking for larger homes and properties having more outdoor space. The pandemic also caused construction industry delays, leading to housing shortages. The situation increased competition among buyers, thus pushing up the prices. Economic factors, such as income levels, employment, population growth, and immigration, affect the balance between demand and supply in the housing sectors (Hammad et.al, 2019). It played a significant role in determining housing prices in Canada in the previous two years.
Several factors will likely change the Canadian housing situation. Housing in areas such as Winnipeg will likely experience a fluctuating market in 2023. The efforts by the Bank of Canada to reduce interest rates have increased the demand for housing, thus pushing up the prices. Despite the increase in interest rates and a looming recession, the situation in Winnipeg will start as a buyer’s market and later shift into balance. Residential sales are anticipated to record a modest decline of 3.3% across the Canadian housing market in 2023.
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Andrle, M., & Plašil, M. (2019). Assessing house prices in Canada: borrowing capacity and investment approach. International Monetary Fund. https://0-www-elibrary-imf-org.library.svsu.edu/downloadpdf/journals/001/2019/248/article-A001-en.pdf
Grigoryeva, I., & Ley, D. (2019). The price ripple effect in the Vancouver housing market. Urban Geography, 40(8), 1168-1190. http://neighbourhoodchange.ca/documents/2019/07/grigoryeva-ley-2019-price-ripple-vancouver-housing-abstract.pdf
Hammad, I., El-Sankary, K., & Hornibrook, H. (2019). RETSManager: Real-estate database builder and synchronizer. SoftwareX, 10, 100351. https://doi.org/10.1016/j.softx.2019.100351
Sardar, T., & Sardar, T. (2021). Descriptive Examination of the Impact of Canadian Mortgage Stress Test in Lending, Borrowing and Affordability. International Journal of Engineering Applied Sciences and Technology, 5(9), 1-9. https://ijeast.com/papers/1-9,Tesma509,IJEAST.pdf