Canadian Home Prices to Recover in 2024: Forecast

The Canada Mortgage and Housing Corporation’s new forecast for the national residential real estate market suggests that the start of a recovery may be around the corner.

By Josh Sherman | 3 minute read

Canadian home prices and sales are on track to end the year lower than in 2022, but the market could begin rallying in 2024.

Canada’s national housing agency expects home prices in the country to begin rebounding next year.

In the baseline case presented in its latest annual Housing Market Outlook, published April 27, the Canada Mortgage and Housing Corporation (CMHC) forecasts the average price of a Canadian home will tumble to $643,325 this year, down 8.6% from 2022, before rising 7.9%, to $694,196, in 2024. From there, the CMHC anticipates prices to continue climbing further by 7.5% in 2025 for an average of $746,410. 

Over the same period, home sales across the 18 major Canadian markets analyzed would follow a similar trajectory, with 2023 being the low point for activity. “The decline would largely be a result of the continued negative impacts of higher mortgage rates and slower income and employment growth on households’ ability to purchase a home,” writes Gustavo Durango, a senior economist at the CMHC, in the report. The CMHC’s baseline case sees sales dropping 15.1% in 2023, with 423,128 homes changing hands, followed by increases of 11.9% and 6.7% in 2024 and 2025, respectively. 

The CMHC’s is not the first forecast to project a turnaround — at least for some markets — starting as soon as next year. In Desjardins’ Ontario Housing Market Outlook report, released last month, the financial institution predicts home prices will find bottom in most cities in Canada’s most populous province this year. When they do, Desjardins economists suggest, they’re likely to remain well above pre-pandemic levels. 

What Could Support the Canadian Housing Market’s Recovery?  

Declining interest rates after 2023 and lower inflation are factors that are anticipated to drive refreshed demand for housing, contributing to a return to year-over-year price and sales growth, according to the new CMHC report. “Together, these changes, along with renewed growth in income and employment, will support housing demand and supply,” says Durango. 

Between March 2022 and this January, the Bank of Canada embarked on eight consecutive rate hikes as it scrambled to contain runaway inflation. However, it has since hit the pause button, holding the overnight rate — which influences mortgages — at 4.5%. Some experts say it’s overly optimistic to assume that the central bank will begin trimming rates this year, but a number of economists suggest it’s only a matter of time.

There are already some signs that the Bank of Canada’s recent reluctance to hike rates again has boosted confidence in homebuyers who had been standing to the sidelines amid uncertainty about borrowing costs. For example, in the country’s biggest housing market, the Greater Toronto Area, more and more neighbourhoods are slipping into overbidding territory, according to Wahi analysis.   

Housing-Supply Crunch to Worsen  

On the supply front, the CMHC foresees a “significant” annual drop in housing starts, which are a measure of when construction work begins on homes, on the immediate horizon. This year, starts are projected to plunge to 211,917 units, a decline of 19% compared to 2022. Durango says a number of factors are to blame. “These include labour shortages and elevated costs of materials in the construction sector, combined with higher project financing costs from increased interest rates,” he writes. “This will exacerbate current housing shortages in supply constrained markets, including Vancouver and Toronto,” Durango adds.

If housing starts decline, they would be falling at a time when Canada already has the lowest housing stock relative to population of any G7 nation. The country has 424 dwellings per 1,000 residents, according to Scotiabank analysis from earlier this year. France, the leader, has 540 per 1,000 residents.

Like home prices and sales, the CMHC does call for housing starts to pick up in the coming years — first, by 5.6% in 2024 and then by another 5.2% the following year. However, that would mean starts would only reach 235,347 units in 2025, short of the 261,849 recorded in 2022.

A “Baseline Scenario”

Of course, the baseline scenario isn’t the only possibility the CMHC is considering. “We are concerned… there are real downside risks to this outlook,” Durango explains. “The Bank of Canada recently reported that inflation in many countries is easing, but labour markets remain tight and measures of core inflation in many advanced economies suggest persistent price pressures,” the senior economist continues. Because of these challenges, the report also includes an “alternative” case.

For instance, this scenario pegs price declines from 2022 to 2023 at 9.4%, higher than the baseline 8.6%. In the alternative case, prices then increase 4.2% in 2024, rather than 7.9% in the baseline, and 6.6% in 2025, versus the baseline 7.5%. “While we believe that our baseline scenario is the most probable outcome,” Durango explains, “there are vulnerabilities in the economy that forces us to consider these worse outcomes.”