Canadian house prices are expected to fall to 17.5% at their peak, roughly double the fall during the 2008-09 financial crisis.
After a more than 50% rise during the pandemic, the world’s most expensive property market, which was expected to fall, was not enough to bring affordable price levels.
Canadian households are indebted to a disposable income ratio of 1.84, which makes Canadian households among the top most indebted households in the world. This also makes them more vulnerable to higher rates due to their higher exposure to variable-rate mortgages.
According to the director of Canada economics at Oxford Economics, Tony Stillo, the higher mortgage rates during the pandemic kept the average cost of housing “35 per cent above the borrowing capacity of average-income people.”
He also added that they have forecast to decline house prices by 30% with steady income growth, mortgage rate stabilisation and solid growth in housing supply. This will help bring house prices to an affordable range by late 2025.
The Affordability issue for Homebuyers: The main issue for homebuyers is affordability. To make the houses affordable, the prices need to fall 25%. BoC senior deputy governor Carolyn Rogers said that the prices needed to fall to restore the housing market balance.
The prices rose to 11.8 % in 2022 as compared to 2021. It is expected that house prices to sink by 10% in 2023 and then again rise by 1.3% in 2024.
The biggest price booms in recent years are in Toronto and Vancouver, regional epicentres. But the current forecast is to drop prices by 11% and 9.3% in 2023 after rising as much as 58% and 35% since the pandemic’s start.
Before the pandemic, a drop of 30% in housing prices will be considered a crash in the housing market. But now, due to a 50% increase in the housing market during a pandemic, the 30% drop is still considered higher than the pre-pandemic levels.
Canadian Real Estate: The Real Estate Market of Canada is segmented into Apartments and Condominiums, and Villas and Landed Houses. Also, the residential real estate market is segmented into Cities like Toronto, Montreal, Vancouver, Ottawa, Calgary, Hamilton, and Other Cities.
Canadian Residential Real Estate Market is believed to register a CAGR of more than 10% in the forecasted period.
During Covid-19 and even after the pandemic, builders and buyers have mostly shifted to virtual tours. The contract signings were also done digitally.
People are demanding larger houses due to working from home. The demand has increased significantly. But according to the Bank of Canada (BoC), the affordability index for housing declined by 15.3% in 2, which reflects less restrictive conditions for owning a home. Since then, it has gradually increased to exceed its pre-pandemic level in 2021.
With the continuous growth in home prices across the country, the national average for home prices broke all-time high records in January 2022. The average price for a house in the Canadian housing market was CAD 748,439 (USD 587,487) in January 2022, which is increased upto 20% from 2021.
This price gain was the biggest year-over-year gain in the Canadian housing market history. Different property prices patterns like new houses, new condominiums, resale houses, and resale condominiums are investigated.
The investigation results show that the condominium units grew in value faster than single-family, semi-detached, and row residences before 2020. There have been many changes in the real estate sector since Covid, ranging from virtual tours to a preference for larger homes in the suburbs.
The highest Y-o-Y price growth among the provinces was led by New Brunswick. The housing prices in New Brunswick are up by 32% Y-o-Y to CAD 275,000 (USD 215,861) for January 2022.
Other provinces, too, trailed behind. Nova Scotia sees an increase in price by 23% Y-o-Y to CAD 392,828 (USD 308,350), Prince Edward Island sees an increase of 18% annual gain to CAD 351,890 (USD 276,216), and Newfoundland & Labrador has a 12% annual gain to CAD 324,800 (USD 254,951).
The sales in January 2022 nationally were down by 11% Y-o-Y, while new home listings were down by 11%in month-over-month. Due to this, the sale inventories of properties have dropped to historic lows, leaving purchasers with few options.
Immigration Policies and Real Estate: Due to Covid, immigration was significantly affected. Immigration plays a vital role in the economic growth of the country. Canadian government achieved its goal of having 401,000 new permanent citizens in 2021 and more than 411,000 immigrants in 2022.
These new immigrants mainly reside in big cities like Toronto, Montreal and Vancouver. With the increase in the number of new immigrants, the accommodation requirements for these migrants also increase.
These newcomers mainly rent a house for the first few years, significantly affecting the rental market. The increased number of newcomers looking for a place to rent in these big cities increased the housing shortage.
Other factors: Other than immigration, many factors affect housing prices in Canada. Millennials’ housing needs have changed, especially for homes suitable for families.
Millennials’ numbers have increased by 8.3% in the past five years. And Millennials will continue to dominate the housing market in 2023 and beyond if previous ownership patterns hold.
Between the ages of 25 – 29 (40%) and 40 – 44 (63%), the rates of ownership have grown dramatically. Millennials will be the most common first-time homebuyers and a growing number of move-up buyers in the coming years.
- Canadian Real Estate Soared 50%
- High Household Indebtedness
- 30% Expected Price Drop
- Virtual Tours and Digital Signings
- Immigration Boosted Prices
- Big Cities Struggle with Housing
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