7481 Woodbine Ave #203, Markham, ON L3R 2W1 (647) 806-8188
Copyright © 2021 CondoTrend. All rights reserved.
The Canada Mortgage and Housing Corporation (CMHC) has released its latest housing market outlook, stating that Canadian home prices will continue to decline until the middle of 2023. This will be followed by a bottoming out and then a rise again through 2025. The agency’s annual forecast predicts that, while the average home price for 2023 will end up below last year’s level, a lack of supply and increasing demand will reinforce the country’s housing affordability challenges.
The CMHC forecasts a decline in housing starts due to higher construction and borrowing costs, predicting that new supply will remain below 2021 and 2022 levels before seeing some recovery in 2024 and 2025. Chief economist Bob Dugan warns that with demand for housing still well outpacing new housing supply, affordability challenges will persist for owners and renters. Higher mortgage rates and still-elevated price levels will make homeownership less affordable, even while prices have declined.
The housing agency forecasts that the Bank of Canada will hold interest rates steady throughout the rest of the year and will start to gradually bring them down in 2024. The central bank left its benchmark interest rate unchanged at 4.5% on April 12. Dugan expects that what’s been done so far in terms of interest rate increases is going to slow the economy enough to get rid of the excess demand and that we’re going to see inflation begin to move lower.
Once the central bank eventually starts to cut interest rates next year, stable and declining interest rates will lead to an improvement in housing demand and a gradual increase in home sales, albeit with a very tight supply in the market. However, a lack of affordability will continue despite cooling inflation and a gradual decline in mortgage rates, which are both expected to help housing demand. Many households will be forced to remain in the rental market, which is already facing severe supply shortages, especially in Toronto, Vancouver, and Montreal, according to the CMHC.
The agency also said the large declines in 2023 housing starts will be more severe in Ontario, British Columbia, and Quebec compared to other regions, and that this is where the biggest challenges in terms of housing starts over the next year or so will be. It concerns Dugan that it’s moving in the wrong direction to restore affordability.
The CMHC expects that approximately two million starts will be built between now and 2030, while Canada needs an extra three and a half million starts to actually restore affordability to housing. However, Dugan says he is less optimistic because the environment for housing starts right now is fairly challenging, explaining that the state of construction is affected by high interest rates, labor shortages, and high material costs.
In terms of demand, Dugan says Canada has reached the bottom and will see a stabilization of housing demand and house prices in the second quarter, with growth in demand picking up from there thanks to stabilizing interest rates. However, the lack of affordability and supply shortages will continue to be issues.
7481 Woodbine Ave #203, Markham, ON L3R 2W1 (647) 806-8188