Housing activity picked up across the country in December after plummeting for much of 2022 due to climbing interest rates—a sign some take that the market is approaching a bottom.

There were 34,256 sales in the month, still down 39% from year-ago levels, but up 1.3% compared to November, according to data from the Canadian Real Estate Association. It was the second monthly gain in the last three months.

“Home resales are now gradually stabilizing in most parts of the country…” observed RBC economist Robert Hogue. “This is consistent with our view that a cyclical bottom is approaching—likely in early 2023.”

But the same can’t necessarily be said about home prices.

“It will take a little longer for prices to steady though,” he noted.

The average sale price fell to $626,318, down 12% year-over-year and 19% below the peak price reached in February.

The MLS Home Price Index, which adjusts for market composition, ended the year down another 1.6% in December, marking its 10th straight month of declines. On an annual basis, the HPI was down 7.5%.

RBC’s forecast has the HPI continuing to slide until the spring “at the earliest, as poor affordability continues to weigh heavily on buyers.”

Cross-country roundup of home prices

Here’s a look at select provincial and municipal average house prices as of December.

Despite overall weakness in the market, there were pockets of price strength, particularly in places like Calgary (+8.1% year-over-year), Halifax-Dartmouth (+6.3%) and St. John’s (+5.1%).

*Some of the movements in the table above may be somewhat misleading since average prices simply take the total dollar value of sales in a month and divide it by the total number of units sold. The MLS Home Price Index, on the other hand, accounts for differences in house type and size.

What’s in store for 2023?

With the book now closed on 2022 real estate data, attention is now focused on how the market will perform heading into 2023.

“In 2022, we saw one of the biggest single-year shifts on record in Canadian housing activity, from record highs last winter to just below the 10-year average to end the year,” said Jill Oudil, Chair of CREA.

Yet, despite affordability challenges posed by inflation and sharply higher interest rates, the low level of new listings suggests “there are no real signs so far that forced selling is dominating the supply picture,” said TD economist Rishi Sondhi.

Oudil added that “the market’s adjustment to higher rates may be mostly in the rear-view mirror at this point. That could start to bring buyers back off the sidelines this spring.”

But if the current dip in new listings continues, they could be faced with few property options.

CREA reported that the number of newly listed homes fell 6.4% from November, led by declines in British Columbia and Quebec. “It was among the lowest December new supply levels on record,” CREA noted.

Months of inventory, a rough measure of supply and demand, was unchanged at 4.2 months.

But RBC’s Hogue doesn’t think the trend will persist. “This drop in new listings is unlikely to be the start of a trend,” he wrote. “We expect more sellers to make their way to the market as signs of a bottom accumulate. Higher interest rates may also press a number of current owners to sell if mortgage payments become unmanageable.”

Looking further ahead to a potential bottom in the market, Hogue added that the subsequent recovery could prove disappointing.

“We expect the upcoming recovery to be a largely muted affair at first. Higher interest rates and stretched affordability will continue to be huge issues for buyers throughout 2023—and possibly beyond,” he noted.

“This is poised to keep activity quiet and limit any price gains.,” he added, although continued strong population growth will “eventually heat things up.”

For CREA’s part, it expects home sales to total 495,858 in 2023, which is 0.5% lower compared to 2022 figures. Looking out to 2024, it sees sales rising 10.2% to 546,625 units.

CREA also now sees home prices declining 5.9% on an annual basis to $662,103 in 2023.

“It’s important to note that based on the monthly data under the surface, that decline has already happened over the course in 2022,” CREA noted. “However, the record-setting start to that year will be reflected as a decline this year as prices are not expected to be anywhere near those record levels in 2023.”

In 2024, CREA sees home prices recovering by a moderate 3.5% to $685,056.

Canadian home prices Canadian home sales canadian mortgages Canadian Real Estate crea home prices home sales house prices real estate market report

Last modified: January 19, 2023