Randall Bartlett,
Senior Director of Canadian Economics
Housing has dominated economic discourse in Canada for years. Whether on the trading floors of Bay Street or with the neighbour down the street, rising home prices and the broader flurry of housing market activity are front of mind for Canadians. And now that central banks around the world are aggressively tightening monetary policy to rein in decades-high inflation (including the Fed just this week), the national fixation on housing continues unabated.
However, what has changed recently is the tone around housing in Canada. There is an inescapable feeling that we’ve crested the peak and are now looking down the other side. Data released this week from the Canadian Real Estate Association support this view. Sales activity has now fallen for three consecutive months, and the national average home price has dropped more than 10% from its February 2022 peak. And if our recent Economic Viewpointproves correct, existing home sales and prices will have to correct further to bring the housing market back to balance. At the national level, we anticipate that home prices will decline around 15% from their February 2022 high by the end of 2023. This will have knock-on effects on everything from housing starts to spending on consumer durables like household appliances. All these considerations weigh on our outlook for the Canadian economy that will be published in our upcoming Economic & Financial Outlook on Monday.
But it’s not all bad news. For instance, we expect the national average home price to remain more than 20% above its pre‑COVID level at the end of next year despite gradually falling from its pandemic peak. Housing market outcomes are also likely to vary considerably across Canadian provinces and communities. Those that saw the biggest price gain will likely also experience the greatest price correction, but we don’t expect home prices to fall below their pre‑COVID level in any province. Indeed, the fundamentals underpinning the Canadian housing market remain solid. They include a strong labour market, healthy household balance sheets, high levels of immigration and enough remote and hybrid work to allow more Canadians to live in smaller cities and towns. In fact, we expect more Canadians than ever before to purchase homes and stay in places with greater housing affordability. Taken all together, these fundamentals should help the Canadian housing market move closer to balance after a prolonged period of excess.
It’s also encouraging that policymakers are focusing more on affordability. In a recent note, Desjardins Chief Economist Jimmy Jean said, “Many policy initiatives have been put forward, but the question remains: will they move the needle and by how much?” So far, efforts to increase housing supply haven’t materially improved affordability in Canada. But they’re a start. The first step in solving a problem is recognizing you have one, and politicians have done that much. Now let’s see if they can deliver on their promises and help improve housing affordability and accessibility for all Canadians.
Read the full commentary: Housing Is Where Canada’s Heart Is