Where is Ontario's Housing Market Headed in 2023?

The Ontario housing market experienced a dramatic drop in home prices over the past year. As we look ahead to 2023, the question on everyone's mind is whether this downward trend will continue. Despite the...

The Ontario housing market experienced a dramatic drop in home prices over the past year. As we look ahead to 2023, the question on everyone's mind is whether this downward trend will continue. Despite the decline, experts believe that the market has already reached its bottom, and prices are not expected to fall much further.

According to the Canadian Real Estate Association (CREA), the benchmark price of a home in Ontario, which combines sale prices of condos, attached, and detached houses across all markets in the province, peaked at $1.08 million in March 2022. This represented a staggering 64% increase in just two years since the start of the COVID-19 pandemic.

Since then, the benchmark figure has fallen by nearly 20%, bringing prices back to their September 2021 levels. However, with the number of homes bought and sold monthly at its lowest per capita since the mid-1990s, the real estate market is eagerly awaiting signs of recovery.

Real estate experts and analysts predict that home prices in Ontario will continue to decline in the early part of 2023 but will stabilize in the second half of the year. Rishi Sondhi from TD Economics states, "We are expecting further downside [to prices], but less relative to what we've seen so far. We think that the bulk of the correction... is behind us."

One of the main factors affecting the housing market is the recent increase in interest rates by the Bank of Canada. Higher rates have dampened demand, but strong employment levels and expected immigration numbers are projected to fuel housing demand. On the supply side, property owners are hesitant to list their properties due to the drop in prices, while investors may be forced to sell because of the higher carrying costs of the increased interest rates.

Additionally, the rapid pace of new home construction has begun to slow down, and there are concerns about project cancellations or delays due to higher building costs and interest rates. This change in supply dynamics may further impact the market in the latter part of 2023.

Mark Ostland, a real estate expert with Meridian, Ontario's largest credit union, suggests that if the Bank of Canada stops raising interest rates, it will instill confidence in potential buyers and contribute to market stability.

However, analysts anticipate that the volume of listings and sales will remain low in Ontario for the foreseeable future. People are hesitant to list their homes when prices are falling, resulting in subdued supply. Home sales numbers in the Greater Toronto Area have reached their lowest point in over a decade, indicating a quiet market.

ReMax, one of Canada's largest real estate firms, predicts that prices in the Greater Toronto Area will decline to their 2021 levels, representing an approximately 11% drop from the average price this year. Outside of the GTA, smaller cities in Ontario are expected to experience further price declines due to the proportionately higher number of houses compared to condos.

According to ReMax's 2023 real estate outlook, cities like London, Kitchener-Waterloo, Barrie, and the Georgian Bay area could see average price declines of up to 15%. However, other cities in the province, including Ottawa, Hamilton, Windsor, and Sudbury, are forecasted to experience modest price increases of two to eight percent.

Nationally, the Canada Mortgage and Housing Corp. (CMHC) predicts that the average sale price across Canada will continue to decline until the second quarter of 2023.

As we look ahead to 2023, the Ontario housing market is expected to stabilize after experiencing significant price declines. While some uncertainties remain due to supply and demand dynamics, experts are optimistic that the worst is behind us. It will be interesting to see how Premier Doug Ford's promise to increase housing supply through various government initiatives will impact the market in the coming year.

Home in Toronto's east end This home in Toronto's east end was first listed for $1.849 million, relisted for $100,000 less and ultimately sold in October 2022 for $1.65 million, according to data from the real estate firm Realosophy. (Image source: Showwei Chu/CBC)

Impact on new condo construction The Canada Mortgage and Housing Corp. is predicting headwinds for new condo construction in the Greater Toronto Area. 'Higher construction costs and interest rates could lead to project cancellations or delays in project launches and dampen homebuying activity," said the CMHC in a recent housing supply report. (Image source: Patrick Morrell/CBC)

Changes in Ontario's benchmark home price This graph from the Canadian Real Estate Association shows how its benchmark home price in Ontario has changed over the years, with a steep drop since peaking in March 2022. The benchmark price is calculated from the composite value of sales through the MLS real estate system. (Image source: CREA)

House sold in 2021 In the fall of 2021, this house in Toronto sold for $1.9 million, more than $500,000 over the asking price. (Image source: CBC)