CMHC (Canada Mortgage and Housing Corporation) Housing Market Outlook 2023

Key highlights:

• In Canada, house prices and supply was forecasted to decline from 2022-2023 due to continued negative impacts of higher mortgage rates and weaker economic growth. However, the price decline will likely end sometime in 2023 before increasing for the rest of the forecast period.
• There will be a significant drop in housing in 2023 and recovery will start in 2023-2024 and onward.
• Rental affordability is set to decline as there are more buyers in the market than properties available, especially in Toronto and Vancouver.
• According to the latest CMHC predictions, the average MLS® home price will drop to about $643,325 in 2023, representing a nearly 9% decrease from the average price of $703,875 in 2022. However, despite the decrease, prices will still be nearly 14% higher than they were in 2020.
• As the economy and immigration gain momentum, CMHC also anticipates that home prices will start climbing again in 2024, hitting an average of $694,196 in 2024 and $746,410 in 2025.

What is the CMHC Housing Market Outlook?

The CMHC Housing Market Outlook is meant to help predict upcoming trends in Canada’s new home, resale and rental housing segments. The outlook also helps forecast national and local impacts on affordability, supply and other housing challenges.

National overview

Housing prices are predicted to begin rising in 2024 due to increased demand and ongoing supply shortages. For the entirety of 2023, there is an expectation of year-over-year declines in both home prices and sales. This is mainly due to the negative effects of higher mortgage rates, slower income and employment growth on people’s ability to buy a home. Additionally, a mild recession in 2023 is possible, and credit growth from Canadian financial institutions may be restricted, contributing to lower growth.

In the base-case scenario, price declines are projected to conclude during 2023, but the average price for the year is expected to be below 2022 levels. Recovery in prices is anticipated as economic growth picks up and immigration increases. However, the shortage of available housing will still play a role in driving up prices and affecting affordability.

Housing starts will experience a significant decline in 2023 due to various factors, including labour shortages, higher construction material costs, and increased project financing costs due to rising interest rates. This will worsen existing housing shortages, particularly in supply-constrained markets like Vancouver and Toronto.

From 2023 to 2024 onwards, there is a predicted increase in annual housing prices, sales and housing starts. Inflation should be back to the 2% target by the end of the forecast period and mortgage rates will slowly decline from 2023 levels. These changes along with increased growth in income and employment, will support housing demand and supply.

Affordability challenges in homeownership will increase demand for rental units and this demand will be added to rental demand coming from high immigration levels. Rising rental demand combined with limited supply will create tighter conditions in an already strained market and will lead to higher rent costs.

Economic and financial outlook

In CMHC’s baseline scenario, there is a possibility of negative economic growth in 2023 due to higher interest rates and economic uncertainty. This could lead to a mild recession which will recover in 2024 and 2025. There are downside risks to this outlook which are covered in their alternative scenario. The alternative scenario is provided to give more information to Canadians and the housing sector so that precautionary actions can be taken. The key risks considered is a longer period of high inflation and interest rates, which will lead to more declines in housing starts, prices and sales, similar to the downturn that was observed in the early 1990s.

The alternative scenario examines two other risks:

• Increased household debt-service burden as a result of high interest rates and weaker economic outlook, which could lead to reduced housing demand and slower global supply chain recovery.
• Increased geopolitical risks leading to lower GDP growth as a result of slow global supply chain recovery.

As a result of these two risks, households could face higher mortgage rates and debt levels, which could lead to weaker economic and housing growth in 2023 compared to the base case.

• According to the Spring 2023 CMHC predictions, the average MLS® home price will drop to about $643,325 in 2023, representing a nearly 9% decrease from the average price of $703,875 in 2022. However, despite the decrease, prices will still be nearly 14% higher than they were in 2020.
• As the economy and immigration gain momentum, CMHC also anticipates that home prices will start climbing again in 2024, hitting an average of $694,196 in 2024 and $746,410 in 2025.

Regional predictions for the housing market

• The Prairie provinces are expected to have more positive housing market conditions due to interprovincial migration and increased home affordability.
• Ontario, British Columbia and Quebec will see a significant decrease in the number of new houses being built compared to other regions in 2023. This is particularly concerning as these provinces are home to three of the biggest housing markets, Toronto, Vancouver and Montreal which are already tight for supply.
• The Atlantic region’s economy remains stable and moderate relative to other regions.

CMHC city housing market predictions

Toronto CMHC housing market prediction

• It is expected that total housing will fall in 2023 and accelerate in 2024 and 2025. This will be a result of higher costs for construction financing, labour and materials taking effect on construction activity
• The MLS® average price in the Greater Toronto Area (GTA) is expected to decline in 2023 before increasing over the next 2 years. Homeownership will be challenging due to increased price levels.
• Rental market conditions will remain tight, meaning rent prices will continue to climb.
• The average MLS® home price for Toronto will drop to about $1,107,000 in 2023, compared to the average price of $1,190,985 in 2022. However, despite the decrease, prices will still be nearly 17% higher than they were in 2020 at $929,673.
• CMHC also anticipates that home prices will start climbing again in 2024, hitting an average of $694,196 in 2024 and $746,410 in 2025.

Hamilton CMHC housing market predictions

• It’s expected that the average MLS® price will hit its low point in 2023 and gradually rise in 2024 and 2025. This recovery will prompt the price turnaround and will be supported by declining mortgage rates, strong population growth and an improving economy starting next year.
• Housing starts will decrease in 2024 after four consecutive years of above-average levels. Slow pre-construction sales of condos might delay their start dates to 2025.
• A number of housing starts in 2023-2025 will be intended for the rental market driven by high international migration and low homeownership affordability.
• Rental vacancy rates are expected to remain below historical averages due to balanced demand and supply. This will increase affordability concerns.
• The average MLS® home price for Hamilton will drop to about $915,000 in 2023, compared to the average price of $962,801 in 2022. However, despite the decrease, prices will still be nearly 27% higher than they were in 2020 at $692,419.
• CMHC also anticipates that home prices will start climbing again in 2024, hitting an average of $970,000 in 2024 and $1,040,000 in 2025.

Vancouver CMHC housing market predictions

• Prices remain on a long-run growth path as there are fewer homes available for a growing population.
• Housing starts will fall due to the demand for condominiums decreasing and increased costs for construction and financing.
• There is a higher demand for rental properties compared to the rate at which new purpose-built rental properties are being built. The secondary market will have to accommodate the demand.
• The average MLS® home price for Vancouver will increase to about $1,272,000 in 2023, compared to the average price of $1,227,245 in 2022.
• CMHC also anticipates that home prices will hit an average of $1,364,000 in 2024 and $1,434,000 in 2025.

Edmonton CMHC housing market predictions

• The CMHC expects annual growth in the average home price to be less than 1% in 2023 due to a sales shift towards multi-unit options earlier in 2023. Growth should strengthen in 2024-2025.
• Housing starts will decline slightly in 2023 due to higher-single detached new home inventories. Starts should improve in 2024-2025 Demand for rental accommodations will increase due to strong population growth and higher mortgage rates. Apartment vacancy rate will come down in 2025.
• The average MLS® home price for Edmonton will increase to about $426,000 in 2023, compared to the average price of $399,734 in 2022.
• CMHC also anticipates that home prices will hit an average of $448,000 in 2024 and $470,000 in 2025.

Calgary CMHC housing market predictions

• Rental market affordability will decline as vacancies continue to decrease and rent prices rise.
• CMHC expects average home price to remain steady and sales activity to be lower.
• New home construction will slow down due to expensive financing, resulting in lower project feasibility and demand slows for single-family homes.
• The average MLS® home price for Calgary will increase to about $541,600 in 2023, compared to the average price of $531,719 in 2022.
• CMHC also anticipates that home prices will hit an average of $626,500 in 2024 and 686,500 in 2025.

Ottawa CMHC housing market predictions

• The Ottawa market will cool down and prices should decrease, resulting in the first annual price decrease in almost 30 years.
• The impact of rising interest rates should be felt in 2023. The number of housing starts will decrease as a result of reduced profitability of residential development projects.
• Rental demand will continue to be strong in 2023 and lead to another decrease in vacancy rates.
• The average MLS® home price for Ottawa will increase to about $700,000 in 2023, compared to the average price of $691,727 in 2022.
• CMHC also anticipates that home prices will hit an average of $746,000 in 2024 and $810,000 in 2025.