Canadian Real Estate Market Expected to Cool Down in Second Half of 2023, Experts Say

In a recent forecast by Canadian experts, it has been predicted that the country's real estate market will lose its growth momentum in the second half of this year.

In a recent forecast by Canadian experts, it has been predicted that the country's real estate market will lose its growth momentum in the second half of this year. Rishi Sondhi, an economic analyst at TD Bank, stated in an email to the press on July 5 that Canadian home prices and sales, which experienced a surge in the first half of the year, are likely to gradually decline as we move into the latter part of 2023.

The previous market downturn in 2022 and early 2023 already reflected economic fundamentals such as income and population growth. However, with the recent recovery, the gap has significantly narrowed. The active state of home sales has been attributed to the Bank of Canada's decision to halt interest rate hikes earlier this year. Nevertheless, experts believe that another hike in interest rates may stifle the ongoing recovery. The recent increase in the prime rate to 4.75% has caused concern among market participants as mortgage costs have risen once again.

Realtors have reported that the housing market is already starting to show signs of slowing down after experiencing a hectic buying and selling wave during the spring. Elise Kalles, a realtor at Harvey Kalles Real Estate, acknowledges that the market operates in cycles and while some areas still experience competition, the overall pace has begun to moderate. An example cited was a recent property listed by the company, which attracted only 18 bids and sold for CAD 1 million, despite an initial asking price of CAD 3.2 million. Broker Paul Maranger of Sotheby's International Realty noted that there has been an increase in housing supply recently, although overall levels remain low. This time of year often sees parents preoccupied with the end of the school year, while homeowners tend to spend the majority of their summer in their current residences. As a result, sales in July and August are expected to be slower compared to the peak in the spring.

Toronto-area broker Toni Martins reflects that while business had returned to normal since March 2023, the recent interest rate hike imposed by the central bank will pose challenges for homebuyers. Robert Kavcic of the Bank of Montreal commented that the 25 basis point increase in interest rates is dampening demand and cooling the overall housing market. Rather than sparking a fresh housing adjustment, the central bank's actions are putting downward pressure on the market and are expected to continue impacting it until the end of the year.

Observers argue that the shift in the country's housing market is a direct consequence of the central bank's decision to tighten interest rates. Randall Bartlett, the chief economist at Desjardins Financial Group, explains that while the decline in housing trends leads to a shortage in supply, it also helps maintain stable house prices. He acknowledges that various factors contribute to increased demand for housing, but recent developments, such as rising interest rates, have acted as a cooling mechanism. Sondhi also suggests that a further interest rate hike would impede the growth of home sales, although house prices are expected to remain robust due to the limited supply resulting from a slower pace of new construction.

According to figures from the Housing Administration, the rate of new construction starts in May 2023 stood at over 200,000 units, a decline of 60,000 units compared to the previous month.

In conclusion, Canadian experts are anticipating a cooling down of the real estate market in the second half of 2023. Factors such as rising interest rates and the natural cyclical nature of the market have contributed to this shift. While home prices are expected to remain solid due to limited supply, there may be a slowdown in sales as the impact of the central bank's interest rate hikes continue to unfold.