A new forecast released by the Canadian Real Estate Association (CREA) predicts that the average price of a home sold in Canada this year is expected to fall by 5.9% to $662,103 before slowly rebounding in 2024. The data from CREA suggested that average home prices will slowly recover during 2024.

As we entered 2023, rising interest rates and a lack of inventory have been the biggest challenges facing the market. They have caused many buyers to sit on the sidelines, leading to reduced sales activity as opposed to early 2022.

Shaun Cathcart, CREA’s senior economist, noted in the report, “The housing market story of 2022 was about high inflation and rising interest rates. The 2023 market will depend on the timing and extent those factors move back in the other direction. Demand for housing continues to grow, and supply remains the biggest issue across the entire spectrum. Whether that plays out in the rental market in 2023 or shifts back over into the ownership space is a matter of how quickly the Bank of Canada can get inflation under control and starts turning the dial back down on borrowing costs.”

Meanwhile, Christopher Alexander, president of RE/MAX Canada, pointed to inventory levels as the main challenge facing this real estate market at the beginning of 2023, “The thing that’s really concerning is the inventory levels that we’re seeing, which is very, very interesting because never before has a path towards a potential recession not coincided with a big rise in housing inventory. It’s actually gone down”.

However, Alexander noted that buyers would not remain on the sidelines forever, and escalating rent prices could be another catalyst for buyers to enter the market once again, “There is going to come a point when people can’t put their plans on hold anymore, or they look at buying as a more affordable option versus renting because rents are so high,” Alexander said. “Despite higher mortgage rates, the monthly payments versus renting are more attractive so I think we’re gonna see a shift from renting to buying somewhere towards the end of the spring this year.”

CREA also released its updated figures for December 2022, which showed that the average monthly home price closed the year down 12 percent at $626,318. The MLS Home Price Index was down 7.5 percent from the previous December.