Canadian Real Estate Association Updates its 2022-2023 Home Sales Activity Forecast

The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity via the Multiple Listing Service® (MLS®) Systems of the Canadian Real Estate Boards and Association in 2022 and extended the forecast into 2023.

The report reveals that home sales started 2022 below 2021 levels, while price growth has continued at a record-breaking pace. This is consistent with strong demand meeting end-of-month inventory levels that are lower than have ever been seen before. Nonetheless, some 612,800 properties are forecast to trade hands via Canadian MLS® Systems in 2022—a decline of -8.1% from 2021 but still the second-highest annual figure ever by a sizeable margin.

The national average home price is now forecast to rise by 14.3% on an annual basis to $786,000 in 2022. Home sales are forecast to remain historically strong in 2023 while continuing to move slowly back in the direction of the longer-term trend. Limited supply, higher prices and higher interest rates are expected to further tap the brakes on activity and price growth in 2023 compared to 2022, particularly in Canada’s most expensive markets.

National home sales are forecast to edge back a further 2.7% to 596,150 units in 2023—still the third-best year on record.

Along with the ongoing supply crisis, the other main factor expected to impact housing markets this year and next will be higher interest rates. While discounted five-year mortgage rates have already begun to rise—a jump last spring followed by a steady upward trend since last October—and are now back above pre-COVID-19 levels, the Bank of Canada has only just announced its first quarter point hike in early March.

Analysts surveyed by Bloomberg Economics see the overnight rate ranging from 1.75% to 2.75% by the end of 2023. That said, given markets are currently pricing in 1.75% by the end of 2022, it is more likely to be the latter. That would make for nine Bank of Canada quarter-point rate hikes by the end of next year.

Having said that, it’s important to note Canadian borrowers must qualify for their mortgage loans at the stress test rate (currently set at 5.25%), which is currently somewhere in the range of 245 basis points above the typical discounted five-year rate.