Where Ontario's housing market is headed in 2023

The price of buying a home in Ontario dropped from its lofty heights during the past year, and the question for 2023 is whether the downward trend will continue. 

The Canadian Real Estate Association (CREA) benchmark price of a home in Ontario — a measure that combines sale prices of condominiums, attached and detached houses across all markets in the province — peaked at $1.08 million in March of 2022. 

That was a staggering 64 per cent leap in just two years, from the start of the COVID-19 pandemic.

CREA's benchmark figure for Ontario has since fallen by nearly 20 per cent, but even that sharp decline only takes prices back to the level they were at in September of 2021.  

How much lower will home prices in this province go? With the number of homes bought and sold monthly now lower than it's been per capita since the mid-1990s, when will the real estate market start to pick up again? 

CBC News surveyed real estate experts and analyzed published forecasts to give you this preview of the Ontario housing market for 2023. 

Overall, real estate analysts generally expect home prices to continue to fall, but not a lot further than they already have.

Rishi Sondhi, of TD Economics, forecasts prices in Ontario will decline through early 2023 but bottom out in the second half of the year. 

"We are expecting further downside [to prices] but less relative to what we've seen so far," said Sondhi in an interview.

"We think that the bulk of the correction ... is behind us."  

That's partly because there are some signals that the bulk of the Bank of Canada's interest rate hikes are behind it. The central bank raised its standard-setting benchmark rate seven times in 2022 in an attempt to tackle inflation     

Condo projects could be cancelled  

Randall Bartlett, senior director of Canadian economics with Desjardins, says it's an open question when Ontario home prices will stop dropping because various factors on the supply and demand side are pulling in opposite directions.

Those higher interest rates have been the biggest factor dampening demand. However, Bartlett points out employment levels remain strong and immigration numbers are expected to rise, fuelling demand for housing. 

On the supply side, many property owners are reluctant to list their properties given how the prices dropped, yet many investors could be forced to sell due to the higher carrying costs of those high interest rates. 

There are also signs that the recently rapid pace of new home construction is slowing. The Canada Mortgage and Housing Corp. (CMHC) recently warned that in the Greater Toronto Area, the combination of a sharp drop in condo pre-construction sales, higher building costs and higher interest rates "could lead to project cancellations or delays in project launches."  

"We're in a very different environment," said Bartlett. "Demand has cooled off, prices have come down, interest rates are higher."

He says this could have an impact on the supply of new housing coming on the market in the latter half of 2023.   

Mark Ostland, a real estate expert with Meridian, Ontario's largest credit union, says if the Bank of Canada is done raising rates, that will give more confidence to potential buyers.   

Volume of listings expected to remain low 

"We are in what I call 'even-steven times' at the moment," said Ostland in an interview.

"On the one hand, we've got more affordable home prices than we've seen in the last couple of years. But on the other hand, we have the continued rising interest rates that are affecting buyers' ability to qualify for the mortgage amount they need." 

Real estate analysts generally believe the volume of listings and sales in Ontario will remain low for some time to come. 

"People really don't want to list their homes when sales and prices are falling, for obvious reasons, and so far, that factor is sort of winning out and keeping supply relatively subdued," said Sondhi. 

Every month since June, home sales numbers in the Greater Toronto Area have been at their absolute lowest in more than a decade — with the exception of the lockdown-affected period in the spring of 2020.    

"Sharply higher interest rates and the considerable loss of affordability continue to challenge buyers. And we think they will keep the market quiet for some time to come," said RBC economist Robert Hogue in his housing market report in December.

On the price side, Hogue noted that Toronto-area prices have fallen 18 per cent from their peak and said "any further depreciation is likely to be more incremental." 

GTA vs. rest of Ontario

ReMax, one of Canada's largest real estate firms, forecasts prices in the Greater Toronto Area will decline to their 2021 levels, a roughly 11 per cent drop from the average this year.

There's debate about what will happen to housing markets elsewhere in Ontario that saw astonishingly high run-ups in prices over the past two years.

"Our view is that markets outside of the GTA actually have further to fall than the GTA has," said Bartlett. 

Ontario's smaller cities have a greater proportion of houses to condos than in the Toronto area and that's one reason why they remain more vulnerable to further drops in 2023: Prices for condos have been somewhat less volatile than for houses.

ReMax's 2023 real estate outlook predicts average price declines of up to 15 per cent in London, Kitchener-Waterloo, Barrie, and the Georgian Bay area, while forecasting modest price increases of two to eight per cent in the rest of the province, including Ottawa, Hamilton, Windsor and Sudbury.  

Nationally, the CMHC is forecasting the average sale price across Canada to continue to decline until the second quarter of 2023. 

The coming year will provide an early test of Premier Doug Ford's promise to pave the way for 1.5 million new homes to be built in Ontario in a decade.

The Ford government has used the housing supply crunch as its justification for recent moves to limit what municipalities can charge for development fees, weaken the powers of conservation authorities and open up pockets of the Greenbelt to housing.