January 2023 Market Watch

We get asked this question everywhere we go, especially at this time of year, as a new year is about to unfold before us. We love having the conversation. Educating homeowners and homebuyers on what is really happening, devoid of the hype written in almost every news outlet, is a privilege to us. Here’s our position for the coming housing market year in our area…  

For 2023, we are anticipating a market in correction for the first half of the year, undermining much of the benchmark gains seen during Q4 of 2021 and Q1 of 2022, and quite possibly, wiping them out entirely, but not touching the equity growth that was gained before that through the pandemic. In other words, we expect to still be up in average sale price for Durham Region from 2019. In the second half of 2023, we hope to see stabilization, but that will only happen if interest rates begin to move downward after Q2. Traditionally, recovery takes time and is incremental in scale, month over month, until a trend is established and market balance is baked in. Then growth can begin to be measured – albeit slowly – as confidence, and then demand, return. We will look to 2024 and beyond for really significant gains. 

How low the correction may go is still very much in the realm of speculation, but media outlets have been quick to paint a doom and gloom scenario, using incendiary words like “crash”. This is irresponsible journalism at its finest and can quickly become a self-fulfilling prophesy, regardless of the actual behaviour of the marketplace. We do not believe that we are heading for a crash; rather, a bumpy landing. Government interference in the open market system has caused each of the deep market downturns of the last 40 years (1982, 1990 and 2017 to be precise.) Their latest foray into thwarting natural real estate market growth and therefore homeowner’s equity, has had, and will continue to have, devastating economic impacts on Canada – quite possibly to the tune of $1 trillion in losses – if the widely publicized 25% correction theory for 2023 is allowed to occur, which we don’t believe will. Why? Well, that’s money out of circulation from our financial systems, our building starts and our own discretionary spending on consumer and household goods and services. That’s a perfect formula for a government induced recession. We don’t believe they can afford that to happen to a very great extent. Rather, we believe we will see, over time, an easing of policy and rates to re-stimulate the housing market and ergo, the economy, once inflation is reasonably back under control.

At a time when we have a blatant national housing crisis on our hands, and a newly expanded immigration policy underway, its very hard to believe that we can go very deep for very long. One thing to always keep in mind: you can’t time the market. Millions have tried without success. Those rarities who do catch it right, are simply the beneficiaries of happenstance. A house should always be – first and foremost – a place for you and your family to live. Only after that need is met should it ever be considered as an investment vehicle.

HOUSING MARKET CORRECTION WIDE SPREED ACROSS CANADA:  Robert Hogue, Assistant Chef Economist, RBC  

Canada’s housing markets are still squarely in correction mode. The latest results from local real estate boards confirm activity and prices generally remained under intense downward pressure in November. This was entirely expected considering the heavy toll soaring interest rates are taking on buyers from coast to coast. Higher rates are forcing many of them to put their purchase plans on ice and others to house-hunt on a reduced purchasing budget. We think this will continue to be the case into the early part of 2023 – conditional on the Bank of Canada halting its rate hiking campaign this month. 
 

For the most part, local market activity is downright soft, at levels far below where they were before the pandemic. Vancouver, the Fraser Valley, Toronto, Hamilton, Ottawa and Montreal are among that group. However, areas of the Prairies (including Calgary and Edmonton) continue to operate above pre-pandemic levels despite the correction that has taken place to date. A stronger provincial economy and rising in-migration are no doubt keeping demand relatively solid in those markets. 
Declining price trends are generalized but more advanced in parts of the country that experienced larger appreciation earlier in the pandemic. Toronto, the Fraser Valley and Vancouver have so far shown some of the sharpest drops. We see those trends continuing until demand-supply conditions tighten from current levels. We expect the cyclical bottom for prices to be reached around spring next year – though this is poised to vary market by market. 

TORONTO AREA - QUIET PERIOD CONTINUES

The steep correction may be moderating but is still ongoing at this stage. Home resales fell another 3.8% m/m in November and the composite MLS HPI was down 0.8% m/m – an eighth consecutive drop. Clearly, 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. The surge in interest rates has materially changed the equation for buyers, many of whom may be sidelined for an extended period. It will take further price declines to draw them back in the market. With demand-supply conditions no longer favouring sellers, we believe that’s exactly what’s in the cards. That said, prices have already adjusted significantly since the March peak – the MLS HPI is down 18%, or $245,000 (not seasonally adjusted) – and any further depreciation is likely to be more incremental. Indeed, the monthly rate of decline has slowed noticeably this fall. The picture will differ on a year-over-year basis, though, as comparisons to historically high price points a year ago will drive down annual rate of change meaningfully. 

We sincerely look forward to another year serving you and your family in real estate. 

Thank you in advance for recommending me to your family, friends and neighbours in 2023!

Happy New Year!

As always, we have included below a snapshot of performance of the overall market in Durham Region for the month. For a more specific look at your community, your neighbourhood and your housing style, just call us. We are always available to update you personally on current statistics and inventory, and how they are affecting your home’s value.