Will Sanity be Restored in the Real Estate Market?

Recently a report was published by Desjardins that claimed that housing prices will fall significantly in 2023. Desjardins predicts that housing prices nationally may fall by as much as 25%. The latest Desjardins report revises their original prediction of a 15% fall in housing prices largely due to a more restrictive monetary policy and increasing mortgage rates.

The Bank of Canada has increased its prime interest rate by 1%. This increase affects all lending, particularly when it comes to mortgages. It is anticipated that the Bank of Canada prime lending rate will increase to 3.25% in the new year but some feel that the Bank of Canada, in the face of a weakening housing market may rethink their policy.

Additionally mortgage qualification has been tightened and may be further tightened in the future. This also has a negative effect on housing. Already housing prices have fallen nationally by 4%.

It has been suggested that the Maritime provinces, New Brunswick, Nova Scotia, and Prince Edward Island, which have all experienced larger than average increases in housing prices as a percentage of pre-pandemic prices, may also suffer a larger adjustment in the new year. Despite this gloomy prediction those who have bought recently in this market are expected to get a reprieve when the market stabilizes – this is predicted to happen at the back end of 2023.

It should be noted that the primary reason for the dramatic increase in housing prices in the maritime provinces has been due to migration from other provinces during the pandemic, made possible by the increase in telework, which enabled people to bring their jobs with them. As we are seeing more “back to the office” and also hybrid work situations where telework and office work are being combined, living far from their employer may seem less desirable now.

There may, as a result, be a migration back to home provinces, as living in the maritimes becomes less convenient. This migration would require that prices in other provinces had dropped substantially, allowing buying again in home provinces. The primary provinces that migration took place from were B.C. and Ontario, so watch the prices there to anticipate migration exit strategy and timing.

Statistics from the Canadian Real Estate Association (CREA) tend to support these predictions as nationwide, homes have dropped in price by 5.6% since the beginning of summer. Sales were down in Greater Toronto Area (GTA), Greater Vancouver, Calgary, Edmonton, Ottawa, and Hamilton-Burlington by 23.9%, and these drops do support outward migration.

We have not experienced as severe a drop here in PEI though, where the market is currently reasonably buoyant. Home listing numbers rose in the last month and this has very slightly eased the supply burden on housing. So although there may be predictions of a major price adjustment we haven’t seen it happening here yet.

We are seeing turbulent times and while it is hard to predict the future it would appear that some recent migrants from other provinces may return home. This would help to balance the market supply which has been tilted completely in favour of sellers, as there has been little inventory on the market. We are seeing a slight increase in listings recently that gives this prediction some credibility, but we will have to wait and see how that develops. It is no secret that as inventory tightens, prices go up, and as inventory increases, prices will drop.

How much? Really, in a small market like PEI it is hard to say, as there is really no statistical model.