Royal LePage Adjusts Year-End Price Forecast as Third Quarter Lags

The latest survey by Royal LePage showcases a continued rise in the Canadian housing market during the third quarter, with average home prices spiking by 3.6% year-over-year to $802,900. However, a deeper dive into the figures reveals a market in transition, with a projected 7% increase in the final quarter of 2023.

Market Adjustment and Price Impact

The market’s Q3 performance fell short of the earlier 8.5% forecast due to lesser activity in key cities, marking a notable market correction. Toronto and Vancouver notably saw a 0.8% quarter-over-quarter price dip. This correction is set against rising borrowing costs and higher interest rates, with the Bank of Canada keeping its key lending rate at 5% despite two summer rate hikes.

Royal LePage’s president and CEO, Phil Soper, shared insights on the market’s path, stating, “The third quarter was more sluggish than expected, prompting a slight downward revision in our year-end forecast. However, prices will end the year above 2022 levels when prices were nearing their lowest post-pandemic. Trading volumes remain slow in most regions, but the market is solid with growing pent-up demand. A significant shift in property prices is not anticipated for the rest of the year.”

Sector-Specific Insights

The Royal LePage National House Price Composite, covering data from 63 major Canadian markets, highlights a 3.4% year-over-year rise in the national median price of single-family detached homes to $833,600. The condo market also advanced, with a 3.8% year-over-year increase to an average of $587,400. Yet, quarter-over-quarter data presents a mixed view, with single-family detached home prices falling by 1% while condo prices nudged up by 0.1%. Despite these variances, the aggregate home price is still 6.3% below the Q1 2022 peak.

Soper highlights the persisting challenge of scarce inventory, expressing that while recent slower activity allowed for a slight inventory buildup, the number of homes for sale remains insufficient to curb property price hikes.

The Bank of Canada’s lending rate future is uncertain, with economists split on its direction. Recent GDP data shows a stagnant economy in July despite 64,000 new jobs. The national unemployment rate remains at 5.5%, with inflation data set to influence rate decisions further. Soper contextualizes, stating, “Today’s mortgage rates are within a normal range historically, yet significantly higher than pandemic-period rates, which has dampened activity. Like the mortgage stress test introduction, the market will adapt over time.”

Despite sales deceleration, the housing market retains its value, underpinned by strong employment and low mortgage delinquency rates. Soper notes, “Low unemployment and prudent lending by financial institutions have enabled most Canadians to afford their homes despite rising living costs.” The Canadian Bankers Association data shows only 15 out of every 10,000 mortgaged households are over 90 days late on payments as of August 2023, near the lowest level in decades.

To bolster rental housing construction, the Canadian government has introduced a 5% Goods and Services Tax (GST) rebate. Soper commends this move, stating it’s a “step in the right direction” to improve housing affordability, especially in Toronto and Vancouver regions where rent prices have soared.

The housing market across Canada is diverse, with regions showing varied trends. While the year-end forecast was lowered for Canada overall and specific major cities, other areas remained steady. Notably, Calgary is the only city with a raised year-end aggregate price forecast, owing to enduring market activity and buyer interest from across Canada.

The Canadian housing market continues to be influenced by various factors like higher interest rates and limited inventory. The government’s rental housing construction incentive is seen as a positive step. Regional disparities show the housing market’s dynamic nature, with differing challenges and opportunities across the country. The market’s ability to successfully navigate these evolving circumstances will unfold in the coming months.