A TD economist’s report, forecasting what to expect in the ‘Canadian housing market’ in 2023, led a major market newspaper to headline the story with: Home Prices Will Drop Steeply This Year, Forecasts TD Economist..That is misleading and readers are cautioned to treat it as such..The TD report, written by Rishi Sondhi, indicates his expectation that sales and prices will bottom out over the next few months, not ‘drop steeply.’.Declines began in April last year when the Bank of Canada started raising its overnight rate and continued to drop month-over-month through the end of 2022, so the steep rates of declines are in the past, not ahead of us..“Calling a bottom in housing is notoriously difficult,” says Sondhi. “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 of 25 (basis points) in January.”.The bank will make a rate announcement on Jan. 25. .Keep in mind a year ago, sales and prices were hitting all-time records in markets across the country, so year-over-year comparisons will show large gaps, says Sondhi..“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,” he says. “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 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 the fourth quarter of 2022.”.“Still, quarterly price growth in 2023 should be weaker than what we embedded in our September forecast, as the Bank of Canada has taken [its] policy rate even higher than we had previously thought.”.All things being equal, not all things are equal. .Between mid-2020 and the late spring of 2022, a ‘Canadian housing market’ did exist, with all markets experiencing dramatic increases in sales and prices, but the dynamics have changed..The ‘Canadian housing market’ is gone, replaced by regional differences..“Steep annual average price declines are expected to take place in most of the Atlantic Region, Ontario, and BC 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,” he says. “We forecast lesser annual average price declines across the Prairies and Newfoundland and Labrador this year, supported by comparatively decent affordability conditions.”.Sondhi looks to 2023 as a transition year with sales showing gains next year, based on improved affordability..“Growth in Canadian home sales and average home prices should return to positive territory, on an annual average basis, in 2024,” he says. “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 boost to demand.”.“These factors should manifest in stronger sales activity, though at apace 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 out-performance in the Prairies and Newfoundland and Labrador as those markets continue to benefit from a favourable affordability gap,” says Sondhi. “In contrast, tougher affordability conditions in Ontario, BC and across much of the Atlantic should restrain growth.”.As with all forecasts, there is a caveat..“How the supply picture evolves represents a risk to our price forecast,” says Sondhi..“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.”
A TD economist’s report, forecasting what to expect in the ‘Canadian housing market’ in 2023, led a major market newspaper to headline the story with: Home Prices Will Drop Steeply This Year, Forecasts TD Economist..That is misleading and readers are cautioned to treat it as such..The TD report, written by Rishi Sondhi, indicates his expectation that sales and prices will bottom out over the next few months, not ‘drop steeply.’.Declines began in April last year when the Bank of Canada started raising its overnight rate and continued to drop month-over-month through the end of 2022, so the steep rates of declines are in the past, not ahead of us..“Calling a bottom in housing is notoriously difficult,” says Sondhi. “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 of 25 (basis points) in January.”.The bank will make a rate announcement on Jan. 25. .Keep in mind a year ago, sales and prices were hitting all-time records in markets across the country, so year-over-year comparisons will show large gaps, says Sondhi..“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,” he says. “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 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 the fourth quarter of 2022.”.“Still, quarterly price growth in 2023 should be weaker than what we embedded in our September forecast, as the Bank of Canada has taken [its] policy rate even higher than we had previously thought.”.All things being equal, not all things are equal. .Between mid-2020 and the late spring of 2022, a ‘Canadian housing market’ did exist, with all markets experiencing dramatic increases in sales and prices, but the dynamics have changed..The ‘Canadian housing market’ is gone, replaced by regional differences..“Steep annual average price declines are expected to take place in most of the Atlantic Region, Ontario, and BC 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,” he says. “We forecast lesser annual average price declines across the Prairies and Newfoundland and Labrador this year, supported by comparatively decent affordability conditions.”.Sondhi looks to 2023 as a transition year with sales showing gains next year, based on improved affordability..“Growth in Canadian home sales and average home prices should return to positive territory, on an annual average basis, in 2024,” he says. “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 boost to demand.”.“These factors should manifest in stronger sales activity, though at apace 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 out-performance in the Prairies and Newfoundland and Labrador as those markets continue to benefit from a favourable affordability gap,” says Sondhi. “In contrast, tougher affordability conditions in Ontario, BC and across much of the Atlantic should restrain growth.”.As with all forecasts, there is a caveat..“How the supply picture evolves represents a risk to our price forecast,” says Sondhi..“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.”
