What New Forecasts Say About the Canadian Housing Market

Recent developments in Canada’s fast-evolving real estate segment and economy have some experts rethinking earlier market predictions.

By Josh Sherman | 3 minute read

Forecasts for the Canadian housing market are changing as the Bank of Canada returns to hiking interest rates.

Predicting where the housing market is headed often seems like one of Canada’s national pastimes.

Nobody has a crystal ball, but that doesn’t stop pundits across the country from putting forward educated (and not-so-educated) guesses about how the Canadian housing market will fare in the future, capturing headlines as they do. Sometimes forecasts are bang on. Other times, they’re dead wrong. Of course, one thing that makes forecasting so challenging is that external factors can change in a flash, making well-thought-out assumptions suddenly irrelevant. Take changes to the Bank of Canada’s overnight rate. While it was widely expected that the BoC would continue to hike its key policy rate earlier this year, the most recent hikes in June and July certainly caught some off guard (and flew in the face of some predictions that said policymakers would be done by then).

As a result of the evolving economic backdrop and real estate activity from the first half of 2023, at least two major real estate forecasts have been revised this month — but although their predictions differ, neither is suggesting anything resembling a housing crash to hit this year. 

Resilient Demand Could Overcome Higher Rates 

“Despite the central bank’s decision to start raising interest rates again, many buyers are still in the game,” says Phil Soper, president and CEO of Royal LePage, in a July 13 news release announcing the release of the real estate company’s latest House Price Survey, which revises a previous forecast. “Demand remains strong, particularly among those who have secured a rate hold,” Soper continues.

Royal LePage now forecasts that Canada’s aggregate home price, which includes new and resale homes and is based on activity in 62 major markets, will climb 8.5% in the fourth quarter of the year compared to the same time a year ago. Its previous forecast in April had pegged year-of-year gains in Q4 at 4.5%. Between the third and fourth quarters, the real estate company now anticipates Canadian home prices to edge up 0.8%, whereas previously it had expected quarterly growth of 0.4%. “Buyers who are determined to make a purchase this year have accepted the reality of higher initial carrying costs, rationally surmising that rates are at or near peak and will become more affordable before long,” explains Soper.

The forecasts aggregate home prices in major regional markets have also been upwardly revised. For the Greater Toronto Area, that means a price increase of 11% in Q4, up from April’s prediction of 7.5%. In the second quarter, the aggregate price of a GTA home was $1,180,400, representing a year-over-year increase of 1.1%. In Greater Vancouver, meanwhile, Royal LePage is calling for the aggregate price to finish the fourth quarter 7% higher than last year, revised upward from 2.5%. Royal LePage attributes the revisions to strong activity and price growth through the first six months of the year.

More Rate Hikes Add “Uncertainty” to the Housing Market  

On July 14, the Canadian Real Estate Association (CREA) also scratched an earlier forecast from April. Though the association predicts the average price of a Canadian home will be $702,409 this year, down 0.2% from a year ago, that’s a smaller decline than projected this spring, when CREA forecast an annual price drop of 4.8% nationally. “That said, while the annual forecast figure has been raised, the trajectory for prices going forward from here is expected to be less steep,” according to a CREA news release.

CREA did however opt to downgrade its April outlook for home sales. The association predicts 464,239 homes will change hands this year, down 6.8% from 2022. That’s considerably short of the previous call for 561,090 transactions, accounting for what would’ve been a year-over-year spike of 13.9%. “With the Bank of Canada unexpectedly ending its pause on rate hikes in June and hiking again in July, a major source of uncertainty has returned to the housing market,” CREA notes.