CMHC doesn’t expect an average real estate price to return to pre-pandemic levels in 2023

According to the Canada Mortgage and Housing Corp., the average housing price will not go back to its pre-pandemic levels this year as the recent prices decreases are slowing down in many markets and they are expected to reach their bottom this quarter before beginning to grow.

CMHC believes home prices and sales will show year-over-year drops in 2023 with an average annual price lower than in 2022.

The Corp. chief economist Bob Dugan says average real estate prices, which have already fallen by almost 14% from March 2022 to March 2023, are “levelling off.”

“A lack of supply in listings means that prices will begin to go up as sales grow,” – Dugan says, noting that such activity is already seen in Toronto and Vancouver.

“In our opinion, average prices will increase by about 7.9% in 2024 and by approximately 7.5% in 2025.”

In case the expected periods of negative economic growth caused by higher interest rates and economic uncertainty emerge this year, CMHC predicts the average home price of $643,325 in 2023 compared with $703,875 last year. In this scenario, CMHC believes the average price will then grow to $694,196 in 2024 and to $746,410 in 2025.

Sales will reach 423,128 this year, with 473,357 sales in 2024 and 505,215 in 2025. Meanwhile, 2022 saw 498,269 sales.

Nevertheless, “vulnerabilities in the economy,” including high household debt level, forced CMHC to consider an alternative forecast, in which Canada sees a longer period of high inflation and interest rates.

In this case, the average price for this year would be $637,829, followed by $664,600 in 2024 and $708,391 in 2025. Sales would change from 393,005 this year to 397,734 next year and 425,620 in 2025.

At the same time, the decreases expected this year will not cool down the hot market significantly as CMHC predicts a more significant decline in housing starts this year than what we saw during the 2020-2022 period.

CMHC’s baseline forecast shows 211,917 housing starts in 2023, followed by 223,783 next year and 235,347 in 2025.

The alternative scenario will report 176,890 housing starts in 2023, 197,551 in 2024 and 230,865 in 2025.

“This is a downgrade from our previous forecast and it’s disturbing given the need for more supply in order to improve housing affordability,” – Dugan noted.

To compare: there were 217,880 starts in 2020, 271,198 in 2021 and 261,849 in 2022.

CMHC earlier predicted the building of about two million new homes from 2023 to 2030 and an additional 3.5 million houses would need to be built in order to restore affordability in Canada.