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Rising Interest Rates and Tight Supply: Navigating the Shifting Real Estate Market in 2023

The housing market in Canada has seen its fair share of ups and downs in recent years (ok, mostly ups), and 2023 is shaping up to be no different.

According to an article written by Canadian Mortgage Trends, as interest rates continue to rise, experts are predicting a cooling of the market, with home sales and prices declining. However, opinions vary on how severe the decline will be, with some experts forecasting relatively modest growth while others predict further declines on the horizon. In this article, we take a closer look at the predictions for 2023, and examine the factors that are impacting the housing market.

Rising interest rates and inflation in 2022 have had a cooling effect on the Canadian housing market with home sales and prices declining in the latter part of the year.

However, price declines have so far been modest compared to the run-up in prices seen in recent years. As we look ahead to 2023, experts have mixed predictions for the future of the housing market.

The Canadian Real Estate Association (CREA) has forecast that home sales will end 2022 at 532,545, a 20% decline compared to 2021. Additionally, home prices are forecast to end the year up 4.7% to an annual average of $720,255. One of the major factors impacting the market is the tight supply of homes, with the CREA noting that the months of inventory measure remains historically low. This lack of new listings has led to an ongoing issue of not enough homes for sale.

In terms of what 2023 holds, experts have varying predictions:

The CREA has forecast that home sales in 2023 will be 520,156 (-2.3% year-over-year) and home prices will be $721,814 (+0.2%). They note that interest rates on the rise have led to a cooling of home sales and that in some parts of the country, home prices have fallen from their peaks earlier in the year, are flat in some regions, and are still climbing in others.

Other experts have more pessimistic predictions for 2023. Royal LePage has forecast that by Q4 of 2023, house prices will be -1% year-over-year. They cite the first quarter of 2023 as the time when prices should show the deepest decline in home values, comparing 2022’s final weeks of pandemic housing market excess to a much quieter market where values have had a full year to moderate. RE/MAX predicts a -3.3% decline in house prices in 2023, while TD predicts a -10.7% decline. RBC predicts a -8.5% decline in house prices. Fitch Ratings predicts a decline of -5% to -7%.

Overall, that is an incredible range of housing prices that is probably so wide due to regional supply issues. As a mortgage broker, this means you’ll need to look at your regional supply to estimate where your area will fall in the pricing range. In regions where supply is relatively healthy, you can expect to be at the higher end of the price reduction range. In areas where housing supply is tight, expect the impact to be at the lower end of the spectrum.

Despite these mixed predictions, it is important to note that many experts agree that the issue of not enough homes for sale has not gone away and will continue to impact the housing market in 2023. Additionally, it is worth noting that while Canadians may be hesitant to engage in the housing market early in 2023, more see real estate as a solid long-term investment compared to last year. As the year progresses, it will be important to monitor how interest rates, supply, and demand shape the housing market in 2023.

Overall, the housing market in Canada in 2023 is shaping up to be a complex and ever-evolving landscape.

Rising interest rates and a tight supply of homes are expected to continue to impact the market. While predictions for the year vary, experts do agree that the issue of not enough homes for sale has not gone away and will continue to have a significant impact on the market. As we move forward into the new year, it's important to keep an eye on interest rates, supply, and demand to understand how the market will be shaped. Despite the uncertainty, it's also worth noting that many Canadians see real estate as a solid long-term investment, and homeownership can still be achievable for many.


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