🏠💵 National Year-End Price Forecast Downgraded Modestly Following Sluggish Third Quarter: Royal Lepage

Tuesday, 17 October 2023 12:00.PM

- Expect stable home prices through remainder of 2023 despite lower sales volumes -

Third quarter highlights:

• Aggregate price of a home in Canada expected to increase 7.0% in Q4 2023 compared to same period last year, a slight decrease from the previous forecast of 8.5%
• National aggregate home price increased 3.6% year over year in Q3 2023, decreased 0.8% on a quarter-over-quarter basis
• Aggregate home prices in greater regions of Toronto and Vancouver posted modest quarterly declines in Q3 of 2.8% and 1.8%, respectively. Meanwhile, Greater Montreal Area posted 0.6% aggregate price increase quarter over quarter
• More than half (57%) of regional markets in the report posted a quarter-over-quarter decline in Q3 as activity softened
• Royal LePage applauds federal government's GST rebate policy aimed at incentivizing new construction of purpose-built rental housing

According to the Royal LePage House Price Survey released today, the aggregate price of a home in Canada increased 3.6 per cent year over year to $802,900 in the third quarter of 2023. On a quarter-over-quarter basis, however, the national aggregate home price decreased modestly by 0.8 per cent, indicating that while many Canadians have adjusted to the increased cost of borrowing, elevated interest rates continue to impact activity in markets across the country. In September, the Bank of Canada held its key lending rate steady at 5.0 per cent, following two consecutive rate hikes in the summer.

"With activity slowing, home prices softened in some of our major markets over the last three months, following a stronger-than-expected second quarter. Prices remain up on a year-over-year basis, with today's stable market standing in sharp contrast to the steep declines experienced in the third quarter of 2022," said Phil Soper, president and CEO of Royal LePage. "While trading volumes in most regions remain sluggish, Canada's housing market is on solid footing, with pent-up demand building. We don't anticipate a material change in property prices through the remainder of the year."

The Royal LePage National House Price Composite is compiled from proprietary property data nationally and regionally in 63 of the nation's largest real estate markets. When broken out by housing type, the national median price of a single-family detached home increased 3.4 per cent year over year to $833,600, while the median price of a condominium increased 3.8 per cent year over year to $587,400. On a quarter-over-quarter basis, the median price of a single-family detached home decreased 1.0 per cent, while the median price of a condominium remained flat, increasing just 0.1 per cent. Price data, which includes both resale and new build, is provided by Royal LePage's sister company RPS Real Property Solutions, a leading Canadian real estate valuation company.

Compared to the spike in property values reached during the pandemic-fueled real estate boom, the aggregate price of a home in Canada remains 6.3 per cent below the peak reached in the first quarter of 2022.

"Slower activity has allowed critically low inventory levels to build marginally in many regions, yet the quantity of homes available for sale in this country remains well below the level needed to keep a lid on property price increases," Soper continued. "We anticipate the growth of households to far outpace the current rate of new home construction. The housing challenge is complex. A large number of young Canadians are looking to purchase or rent their first home, the number of people per new household is smaller than a generation ago, and baby boomers are living to a greater age and choosing to stay in their homes longer. Retirements are growing and there aren't enough young people to take over, so we need to welcome immigrants at a record rate. New Canadians need housing too, of course.

"Once interest rates begin to ease, even by only a small amount, we expect buyers will return to the market in large numbers and the relentless upward march of home prices will begin again. At its root, housing supply remains out of step with the growing need for it."

Economists are divided on whether the Bank of Canada will choose to maintain its key lending rate or increase it at the next announcement scheduled for October 25th, after recent Gross Domestic Product (GDP) statistics show the Canadian economy essentially flatlined in July, followed by employment data that shows 64,000 jobs were added last month and the national unemployment rate held steady at 5.5 per cent. If inflation rose in September, which will be revealed on October 17th, there is a higher likelihood that the central bank will increase lending rates.

"Looking back over the past half century, today's mortgage rates are in a normal range, and well below the double-digit lending rates of the 1980s," said Soper. "It is the large gap between Canadians' hyper-low, pandemic period mortgages and today's rates that have stifled activity. As with the introduction of the mortgage stress test, the market will adjust. It just takes time."

Among the key reasons that homes have retained their value during this period of slow sales activity is strong employment, which is closely related to the very low rate of mortgage delinquencies.

"Low unemployment coupled with sound lending practices by our financial institutions has ensured that the vast majority of Canadians can continue to afford their homes despite the increased cost of living. To date, we have not seen a material rise in the number of mortgage defaults," noted Soper.

According to the Canadian Bankers Association, only 15 out of every 10,000 mortgaged households in Canada are more than 90 days behind on their payments as of August, 2023, near the lowest level in several decades.

SOURCE: Royal LePage Real Estate Services