Canada’s
housing market correction has slowed considerably in recent months, leading
analysts to believe that a bottom is not far off.
In a recently
Economic Viewpoint from Desjardins, Randall Bartlett, Senior Director of
Canadian Economics, and Marc Desormeaux, Principal Economist, revealed that
they expect sales to find a bottom in the second half of 2023, with prices
rising shortly thereafter. Housing starts should bottom out in early 2024
before beginning a gradual climb.
The
reversal, the economists believe, will be spurred by interest rate cuts from
the Bank of Canada (BoC). The BoC is likely done raising rates, and a “prolonged
pause” will ensue.
Nationally,
the road to the bottom appears gradual. On a local level, though, the drop will
be jarring.
Ontario has
already seen the biggest price decline of any province since the February 2022
peak, but Bartlett and Desormeaux expect home prices to fall further before the
year’s end.
By December,
average home prices in the province will be 25% below peak levels, and just 15%
above December 2019 figures. At the peak, they were 60% above pre-pandemic
prices.
The decline
will be even more significant in communities surrounding the Greater Toronto
Area, the smaller municipalities that city-dwellers fled to in search of more
space during lockdowns.
Between
December 2019 and February 2022, average home price in Windsor rose nearly 100%
and were up almost 90% in Oshawa. They increased by more than 80% in both
Sudbury and London.
But from the
peak to January 2023, average prices declined 20% in Sudbury, and roughly 25%
in Windsor, Oshawa, and London. Prices in St. Catharines, after rising more
than 75% at the peak, were down nearly 30% on average.
Despite
these notable decline in home prices, the economists don’t expect affordability
to improve “by much” in Ontario.
“This is a
very difficult time for households in Canada. In Ontario specifically, housing
affordability eroded significantly during the pandemic, with the affordability
gap with Quebec and the rest of the country widening considerably,” Bartlett and
Desormeaux said.
“While affordability
in Canada’s most populous province in expected to improve as home prices continue
to fall and borrowing costs ultimately come down, we don’t anticipate that it
will return to its pre-COVID level by the end of 2024.”
Although
Toronto remains the most unaffordable city in the province, the issue persists
outside of the GTA, too. St. Catharine’s is now the second-least affordable
Ontario city, followed by Hamilton, Kitchener, and Kingston.
The decreased
affordability has pushed many Ontarians not just out of major cities, but to
other provinces altogether. Instead of leading to a decline in demand, and
therefore less pressure on prices, the outflow has been replaced by an influx
of international migrants and non-permanent residents.
Ontario’s
rapidly rising population will keep housing demand strong, the economists said,
even amid high interest rates. Coupled with the downturn in housing starts – a trend
that is expected to persist throughout 2023 – already dwindling supply will
fall short of demand.
“This is
truly a lost opportunity, as the comparatively low density of the GTA and
surrounding cities suggests there is plenty of room to increase construction
even within existing urban boundaries,” Bartlett and Desormeaux said.
“Policymakers
should take up the mantra ‘location, location, location’ and focus their
affordability measures on overpriced markets.”
Source By: STOREYS