Outlook 2023 – why this will be a better year for homebuyers

Higher interest rates, concerns for the economy, inflation… 2022 wasn’t the easiest of years for prospective new-home buyers. But there are reasons to be optimistic, even positive, about the road ahead this year and into 2024 and beyond. Let’s take a look at some of the key factors.

Interest rates and inflation

The Bank of Canada increased its influential overnight rate target a number of times last year to curb high inflation. It’s slowly working, though the rate hikes have caused many buyers to be cautious. Homebuying activity, as a result, has cooled.

Some experts believe BoC may introduce another rate hike in its next announcement on Jan. 25, but following that, possibly beginning in the second quarter, we could see an end to this trend.

“The second half of 2022 saw one of the slowest real estate markets in the modern history of Canada,” Jesse Abrams, co-founder and CEO of Homewise, told Condo Life. “Many buyers and sellers were waiting on the sidelines to understand where the volatile, increasing rate environment would end up, and what that would mean for the market and prices. In 2023, we could see an influx of sellers in Q2 who will not be able to wait any longer, especially as they fear losing more of their home value with prices dropping. This could spur on the market and be the opportunity many first-time homebuyers have been waiting for to get into the market with lowering prices. Nobody has a crystal ball, but Q2 could be an interesting time for Canadian real estate.”

Senior economist, best-selling author and keynote speaker Ted Tsiakopoulos concurs, suggesting that conditions could move further into buyers’ market territory early or mid this year, especially if some buyers cancel closings, or should some investors exit the market.

Lower prices won’t last forever

The biggest challenge for many prospective homebuyers is saving for a down payment. With some home prices experiencing downward pressure, buyers today need less money to make a down payment. For example, with the minimum down payment for homes of less than $1 million at five per cent, a home that was $600,000 last year may cost $540,000 today. That five-per-cent down payment previously $30,000 is now $27,000.

So, while rates are higher and some home prices are declining, saving for a down payment has become easier for potential buyers in – for now – since we still face a well-documented shortage of new housing that will take time to address.

More Homes Built Faster

The More Homes Built Faster Act was given royal ascent last November, supporting the provincial government’s efforts to tackle the housing supply crisis and get 1.5 million homes built over the next 10 years. Controversial though it may be, More Homes Built Faster is intended to remove unnecessary costs and cut through red tape and other bottlenecks that stand in the way of new homes being built.

Housing is a major government agenda issue

Housing is a major agenda item for our political leaders, as evidenced by More Homes Built Faster and in our last round of federal, Ontario provincial and municipal elections.

In the municipal elections last October, for example, housing supply – specifically, the development approval processes of the province’s 400-plus municipalities – was under the microscope.

Municipal approval timelines for new housing in the GTA have proven to be among the worst of major municipalities across Canada, and add significant costs to new home purchasers. The Building Industry and Land Development Association (BILD) estimates the average delay in approvals adds approximately $50,000 in cost to an 800-sq.-ft. condo, and $100,000 to the cost of a single-family home.

“As inventories increase slightly, we see new home prices starting to moderate, which means the market is behaving as expected,” says Dave Wilkes, BILD president and CEO. “However, with continued high interest rates, hundreds of thousands of Canadians face the formidable challenge of finalizing financing on homes they bought during the pandemic. The federal government needs to be mindful of the impacts of its broad monetary policy on all homeowners, but especially new-home owners. The province and municipal governments, for their part, must maintain their focus on increasing housing supply.”

GOOD LOCATIONS AND VALUE

Last year brought a lot of uncertainties to the market. As a developer with more than 30 years of experience, we have been through a lot of ups and downs. Our government has tackled inflation as much as it can, however, supply and labour shortage issues still exist. More efforts are required to put towards supply and manpower issues, so that new construction developers can afford to build quality homes with better price for customers.

Ballantry has a positive expectation of 2023 GTA real estate market because its economy remains strong, which will attract more residents and new immigrants. Good locations, well-designed and good quality homes are still the main driving force behind this market. In 2023, Ballantry will continue to bring projects that are in good locations, with good value to our customers.

David Hill
President
Ballantry Homes

A RETURN TO NORMALITY

I predict that 2023 is the year of the return to normality. For example, we should see a return to the normalization of mortgage interest rates later in the year. The 10-year average is approximately 3.3 per cent, so anything around four per cent is reasonable. And when buying a pre-construction condo, closing typically occurs between 2.5 and five years later, when rates will have stabilized even more. However, with new immigration and rising construction costs, there will likely be upward pressure on prices, so buying sooner rather than later is wise.

Rental rates are extremely high – in some places, already up to an unprecedented $4 per sq. ft. – which is great news for investors. Plus, some developers are offering great incentives. Now is the time for buyers to jump in. Keep your eye on the prize and enjoy leisurely sales office visits without line-ups.

Debbie Cosic
CEO and Founder
In2ition Realty

LEADING THE WAY

This year brings great hope and possibilities for our industry to lead the way economically. At Baker Real Estate Inc., we’ve just completed our second strongest year since being founded in 1993. We have every reason to believe we will continue this momentum in 2023. This month, we are launching Olive Residences condominium at Yonge and Finch, and the response has been tremendous.

Demand for new-construction condominiums is great for numerous reasons, starting with buyers having anywhere from two to more than five years before closing. Purchasing pre-construction is a smart way to build equity. In addition, mortgage rates will have normalized by the time buyers take possession.
With 430,000 new residents coming to Canada in 2022, we set a new immigration record. This also means increased demand for homeownership and rental opportunities.

Barbara Lawlor
CEO
Baker Real Estate Inc.

CHANGE IN TRAJECTORY

For 2023, we foresee a positive year for the real estate market, with a four- to five-per-cent increase in average sale prices across the GTA.

We anticipate supply levels to remain low throughout 2023, with many homeowners comfortable not selling due to existing preferred mortgage rates secured prior to the recent 2022 hikes.

We also predict mortgage rates flattening out by the second quarter of 2023, with the possibility of a minor rate drop by the third quarter. This would signal the bottom of the market where we would see buyers start coming back.

This would, of course, be a response to the BoC getting inflation under control, which we estimate being achieved in the second quarter of 2023, somewhere in the four- to five-per-cent range. This would be a boost to consumer confidence and start to change the trajectory of the market in the right direction.

If these predictions (supply, interest rates and inflation) come to fruition, along with the continued influx of immigrants to Ontario, we should have a positive year by the third quarter of 2023.

Frank Uccello
Manager of Sales
StateView Homes

RECORD IMMIGRATION

Two factors that should help the housing market in 2023: Record immigration and rising rental rates.

Due to market uncertainty and the availability of trades, some. developers are postponing new launches. The most successful openings post Q1-2022 were priced reasonably. Investors are expecting price rollbacks and discounts on anything that closes within the next three years.

Bullpen is forecasting about 14,000 to 16,000 GTA new condo sales in 2023, down from the typical 20,000 to 22,000. New condo price growth has been 10 to 15 per cent annually over the past 18 months (per-sq.-ft.), and our forecast sees a fall to the low single-digits by Q4 2023.

Ben Myers
President
Bullpen Research & Consulting Inc.

ADVANCING ALL PLANNING

After a correction to home prices in 2022, it is likely that the downward trend will continue, albeit more modestly. Aggressive interest rate hikes last year mean it’s going to take more time for the market to stabilize. People are understandably hesitant to list their home and/or enter new home purchase agreements when sales and prices are falling, but as economic conditions become more predictable, a return to a balanced market should follow.

As a developer and builder, we are continuing to advance all planning to launch two new communities in 2023 – Victoria Annex in Collingwood, and Craighurst Crossing in the village of Craighurst, near Barrie.

Mike Parker
Vice-President, Sales and Marketing
Georgian Communities