Housing Market Predictions for the Next 5 Years

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By the end of 2022, inflation levels had reached an all-time high, interest rates had grown by 400 basis points since the onset of the pandemic, and the impact of the supply-chain crisis was still reverberating throughout the market. Given these unanticipated disruptions, the Canadian real estate market faced a tumultuous and eventful year. Here are a few of the events that shaped the market in 2022:

Interest Rate Hikes:

  • January 26: BoC announces target benchmark rate at 0.25% - unchanged from 2021
  • March 2: BoC announces target benchmark rate at 0.50% - representing a 25 bp increase
  • April 13: BoC announces target benchmark rate at 1.00% - representing a 50 bp increase
  • June 1: BoC announces target benchmark rate at 1.50% - representing a 50 bp increase
  • July 13: BoC announces target benchmark rate at 2.50% - representing a 100 bp increase
  • September 7: BoC announces target benchmark rate at 3.25% - representing a 75 bp increase
  • October 26: BoC announces target benchmark rate at 3.75% - representing a 50 bp increase
  • December 7: BoC announces target benchmark rate at 4.25% - representing a 50 bp increase

Macroeconomic Factors:

  • Russian-Ukrainian Conflict: While geopolitical tensions can sometimes disrupt the Canadian economy, the Russian-Ukrainian conflict impacted the Canadian real estate industry in another way as well. North American homebuilders rely heavily on Russian exports of lumber and steel, but the Canadian Government imposed sanctions on Russian exports in response to their invasion of Ukraine. Following the implementation of Canada’s Special Economic Measures (Russia) Regulations, the cost of building materials increased significantly— incentivizing many homebuilders to pause construction, further contributing to the sub-par supply of available housing in Canada.

Government Policies:

  • Foreign Buyers Ban: In June 2022, the Canadian Parliament passed legislation that would prevent foreign buyers from investing in the Canadian real estate market­— with the goal of preventing home price inflation. However, despite causing quite the stir in 2022, this policy did not come into effect until January 2023. For more information on the impact and scope of this policy, check out our guide to understanding the Canadian foreign buyer’s ban.
  • Blind-Bidding Legislation: In June 2022, The Ontario government announced their intention to put an end to blind bidding practices that were artificially inflating home prices across the province. Unfortunately, the reality of this legislation was less than favorable— as it was not an outright ban, but rather a lukewarm opt-in program. For more information, check out our guide on the blind-bidding ban.

Rental Market Expectations for 2023

The Canadian housing market has remained hot despite rate hikes cooling prices. Why?

Canada fundamentally faces a supply and demand problem. There is not enough housing supply to meet the rising housing demand. With the prospect of owning a home becoming less and less realistic for each generation of new entrants into the workforce, more and more aspiring homeowners have turned to the rental market instead. In Toronto, the cost of owning a home has risen drastically, with brokers estimating that roughly 30% of a property’s cost consists of taxes, fees, and municipal charges. The Bank of Canada has announced that it does not expect any further rate hikes – and the hikes thus far have not reduced property prices as significantly as expected. Given these factors, it is no surprise that we have shifted from a seller’s market into a booming rental market.

In 2019, the City of Toronto launched the Housing Now Program – with the goal of transforming the surplus of unused City-owned land into affordable, rent-controlled housing. Unfortunately, not much progress has been made since. The city recently passed a 2023 Housing Action Plan, but the upcoming mayoral election threatens to disrupt the implementation of this initiative. A few candidates have made promises to implement their own housing initiatives – but the impact of these policies will likely not be realized for years.

In terms of 2023, we can expect rental rates to remain high, with the potential to rise further by the end of the year. According to the National Rent Report (April 2023), rental rates across Canada are on average 20% higher than they were in April 2022. In Toronto, the average per/month rental rate for a one-bedroom apartment is $2506, with Mississauga, Burlington, North York, and Vaughan following close behind at rates of $2232, $2178, $2144, and $2142, respectively.

Until the underlying issues plaguing the Canadian real estate market are resolved, it is unlikely that we will see a drop in rental prices.

Looking ahead to the latter half of 2023, what are some emerging trends we can expect to see develop?

One major development is the increased call for ESG transparency amongst real estate companies and executives. In a survey conducted by PWC in 2022, just 19% of real estate executives reported a commitment to net-zero emissions. As the importance of sustainable business practices becomes ever more evident, it becomes clear that the real estate industry has been lagging behind some of its peers. With growing discourse around ESG initiatives within the homebuilding and utility spaces, we can expect to see further progress being made in these areas. Given the limited availability of financing under the current market conditions, having a strong ESG record will likely become a significant differentiator in the approval process for new developments.

Another significant trend is the Canadian government’s shift towards supply-focused strategies. Previously, it was believed that inflation was largely to blame for rising home prices. But as subsequent rates hikes failed to cause a meaningful drop in prices, it soon became clear that Canada was facing a major housing supply problem. Even as rates hikes curbed housing demand, the supply available for sale was still not sufficient to meet this reduced demand – and as a result, prices remained relatively high. As 2023 progresses, we can expect the discourse around correcting the Canadian housing crisis to place a greater emphasis on increasing supply, as opposed to curbing demand.

For more information on how to best navigate the current housing landscape, contact a Clover Mortgage broker to schedule a free consultation today.


What is the Impact of Interest Rates on Housing Prices?

Housing prices are impacted by supply and demand. As interest rates rise, it not only becomes more difficult for prospective homebuyers to afford their loans, but also prevents many from even being approved—thereby reducing demand. In 2022, increased stress test requirements meant that many Canadians had their mortgage applications outright rejected by the big banks. However, despite massive rate increases, the Canadian market did not see major reductions in price. This is largely due to the supply-demand balance outlined within the above guide.

What was the Impact of COVID-19 on the Canadian Housing Market?

Record low interest rates and record high savings led to an explosion in housing demand. As more and more Canadians scrambled to invest in residential properties, home prices around the country skyrocketed. To make matters worse, the supply-chain crisis of 2021 (further expedited by the Suez Canal blockage) raised input costs such as lumber and steel—causing many homebuilders to slow production. As demand soared and supply dwindled, it is no surprise that the market eventually found itself in a potential housing bubble.

Steven Tulman
Written By Steven Tulman
“Making the process of getting a mortgage an easy and enjoyable experience for every Clover Mortgage client!”