The Canadian housing market is anticipated to witness a decline in both prices and housing starts in 2023, according to the Spring 2023 Housing Market Outlook by the Canada Mortgage and Housing Corporation (CMHC). However, the report states that prices will not return to pre-pandemic levels due to weaker economic growth and higher mortgage rates. While the decline in prices will persist, the average price is expected to bottom out in 2023. The reasons for the slowdown in the market include slower income and employment growth, higher mortgage rates, labour shortages, and elevated costs of construction materials.
The decline in housing starts is also expected to continue in 2023, leading to a housing shortage in supply-constrained markets such as Vancouver and Toronto. CMHC predicts a modest recovery in 2024 and 2025, but it is unlikely to meet the demand growth, putting pressure on affordability for Canadian households.
The challenge of affordability in homeownership is likely to drive up demand for rental units, leading to tighter rental market conditions in already strained markets, resulting in even higher rents. However, the report warns of significant risks to the baseline scenario and has developed an alternative scenario that looks at the impact of inflation remaining higher for longer. In this scenario, CMHC predicts lower housing prices and starts, which will result in higher mortgage rates and debt levels.
While housing prices and sales are expected to record year-over-year declines for 2023, CMHC predicts growth in prices, sales, and housing starts in the 2023-2024 period onwards. The report suggests that housing demand and recovery in new housing supply will be supported by a gradual decline in mortgage rates as inflation comes back to the 2.0% target by the end of the forecast period. However, affordability challenges are likely to persist for both owners and renters due to high demand for housing.
According to CMHC, the Prairie provinces are likely to witness more positive housing market developments than other regions due to high interprovincial migration, relatively healthy ownership affordability, and a stronger economic outlook. Conversely, Ontario, British Columbia, and Quebec are expected to experience large declines in housing starts, which is discouraging since these provinces are home to the three largest housing markets that are already highly supply constrained. The Atlantic region falls between the Prairies and Ontario, B.C., and Quebec in 2023, with respect to forecast growth in economic and housing variables.