“Unprecedented” home price drop in Canada by early 2023: TD Bank

Canada’s housing correction has now been underway for about half a year, and analysts are beginning to have a more accurate understanding of the potential full extent of the downturn once the dust fully settles.

A new report released by TD Bank this week forecasts average home prices across the country could fall by 20% to 25% from the peak of the housing boom at the end of the first quarter of 2022 to the expected end of the downturn in the first quarter of 2023.

Analysts with the bank are calling this home price change projection an “unprecedented decline” at least from the 1980s, when data collection began.

But it should also be emphasized that the downturn’s end prices will still be higher than pre-pandemic. The forecasted decline will only rewind 46% of the home price escalation experienced over the last 2.5 years of pandemic influence.

Over the same period through early 2023, the number of home sales will fall by 35%, which is just under the 38% reduction recorded during the 2008 recession.

So far, home prices have fallen by the most in Ontario and British Columbia. The decline in prices in Alberta is also”relatively steep,” but home sales volumes are still deemed healthy and tight compared to BC and Ontario. The downturn is more moderate in Quebec, while the rest of the Prairies and Atlantic provinces are fairing better.

Generally, condominium prices have so far faired better than single-detached homes, which saw most of the skyrocketing price creep during the pandemic. But analysts believe condominium prices will see a larger drop over the coming months, but not to the same extent as the condominium downturn from 2017 to 2019.

“These differing dynamics capture a partial unwinding of buyer behaviour during the pandemic. Remote work and the desire for larger living spaces prompted buyers to bypass larger urban centres for nearby suburbs or exurbs. Some chose to locate even further away (while some left their home province all together),” reads the report.

“These behavioural shifts caused a shock wave to price growth in markets further afield to the larger centres within BC and Ontario, that is now deflating faster than in the major markets.”

But the entire housing downturn through early 2023 is expected to only amount to a “recalibration” of Canada’s housing market.

The pace of the housing market’s unwinding will slow as the Bank of Canada’s interest rate hikes are expected to come to a trickle in the fourth quarter, compared to the large consecutive hikes over the last few months.

Unlike previous major downturns, the economy is still performing strongly, with personal income on the rise, and the labour market still extremely tight. Canadians have also accumulated major savings during the earlier periods of the pandemic, which gives them more capacity to finance existing mortgages and down payments.

Moreover, inventory in both the new and resale markets remain low.

Strong population growth is also fuelling housing demand, especially with the federal government’s elevated immigration targets. Over the next two years, the immigration targets are even higher than 2022, with a goal of 450,000 new permanent residents in each of 2023 and 2024.