Home prices won’t revert to pre-pandemic levels, should start rising again in 2024: CMHC
The Canada Mortgage and Housing Corporation (CMHC) expects home prices to reach a bottom this year, but aren’t expected to fall below pre-pandemic levels.
That was the takeaway from the agency’s spring Housing Market Outlook, which said weaker growth and higher mortgage rates will continue to slow the housing market and overall economy throughout the year.
“We expect a price decline between 2022 and 2023, but the average price will not revert to pre-pandemic levels,” the report reads. “However, we expect this decline to bottom out sometime in 2023.”
In its latest baseline forecast, CMHC expects the average MLS home price to fall to $643,325 in 2023, a nearly 9% drop from the average price of $703,875 in 2022. In that scenario, prices will remain almost 14% above 2020 prices.
As economic growth and immigration levels continue to pick up, CMHC said it expects prices to start rising in 2024, reaching an average of $694,196 in 2024 and $746,410 in 2025.
In an alternative scenario, which accounts for a longer period of high inflation and interest rates remaining higher for longer, its average price forecasts come in about 5% lower.
Low supply will contribute to unaffordability
Continued shortages in housing supply over its forecast period will contribute to deteriorating affordability, CMHC notes.
“We expect housing starts to see a significant decline in 2023, due to constraints in new construction,” it noted.
The agency sees housing starts totalling just 212,000 units in 2023, down from 262,000 in 2022. Starts are then forecast to increase marginally to 223,000 units in 2024 and 235,300 units in 2025 due to ongoing labour shortages, continued elevated costs of construction materials and higher project financing costs due to high interest rates.
“This will exacerbate current housing shortages in supply-constrained markets, including Vancouver and Toronto,” CMHC says. It adds that the lack of supply, combined with elevated interest rates, “will make homeownership even less affordable.”
Latest CMHC forecasts
Here’s a look at some of CMHC’s other forecasts for the next two years.
The agency sees a total of 423,000 home sales in 2023, which would represent a 15% decline from 2022 results and a 37% drop compared to 2021.
Activity is expected to pick up again in 2024 with a little over 373,000 sales, returning to more historical norms of 505,000 by 2025.
The average 5-year fixed mortgage rate is expected to be 5.7% for 2023, up from 4.9% in 2022 and 3.3% in 2021.
CMHC sees rates falling slowly in the coming years, dropping marginally to 5.6% in 2024 and 5.4% in 2025.