CIBC: uncertainty over Canada’s housing market will ease in 2023

According to Benjamin Tal, deputy chief economist at CIBC World Markets, the uncertainty that has pushed home sellers and buyers out of the market recently will begin to ease this year.

The stable market will encourage sellers to list their properties, he says, and certain distressed borrowers will also increase the supply.

“The lack of listings today is protecting prices from falling even lower,” – he adds.

Increased demand from buyers will set the bottom for prices by the spring, Mr. Tal believes.

The overall market tone will be quite soft, he says, but we will not face a free fall. However, he doesn’t rule out certain difficulties on the way.

Tal expects home sales to go down by another 10-15% this year and then start rebounding slightly in 2024.

Bay Street experts are waiting for the next signal from the central bank, which has raised its key lending rate from 0.25% at the beginning of the previous year to 4.25% in an attempt to restrain the sky-rocketing inflation.

Tal warns that the Bank of Canada shouldn’t overreact. He believes the rate will remain unchanged or will go up by another 0.25%.

According to the economist, certain households worry about facing higher interest rates for a long time, He says some borrowers will have problems if they need to renew their mortgage at higher rates in 2023, while the strongest pressure on renewals will come in 2024 and 2025.

Although Tal has recently pointed to a small increase in mortgage delinquencies, he believes the strongest risk that people can’t make their mortgage payments comes not from rates but from the unemployment level.

While the job market remains strong so far, the economist doesn’t rule out a possible hike in unemployment this year.

Five-year fixed mortgage rates will probably go down, he says.

Tal also expects stubborn home sellers to become more realistic about the prices when they understand that the conditions that caused the February 2022 peak will not come back in the nearest future.

“The market will not return to those conditions, that was insane.”

Although he doesn’t expect a meltdown in the Canadian housing market, he still warns that there are certain real risks, including the unpredictable decisions of the Chinese government, Russian President Vladimir Putin, and other world leaders.