What Will Home Prices Look Like in 2023? Here’s What the Experts Say

With the real estate market in flux, many Canadians are wondering what to expect from home prices in 2023. If you’re thinking about buying a new house, or you’re considering getting the equity out of a home you already own, it can help to know what the experts are saying.

2022 Real estate recap

During the pandemic, low interest rates and increased remote work caused house prices to surge across Canada—especially in the suburbs. By February 2022 in fact, the country’s housing market was breaking records.

Now, as we close in on the end of the year, not only have rising interest rates contributed to the end of the pandemic-era housing market boom, experts say both real estate prices and sales will continue to fall into 2023.

Why are mortgage interest rates rising?

According to the Bank of Canada, the Canadian economy rebounded from the effects of the pandemic “stronger and faster than we anticipated.” This led to excess demand for goods and services, alongside growing inflation (a general increase in prices).

Since the Bank of Canada uses its policy interest rates to control inflation, these rates:

  • Have escalated from 0.5% in March to 3.75% in October (one of the fastest tightening cycles ever)
  • Set the starting point for many of the interest rates that matter to Canadians—including mortgage rates

In other words, the more Bank of Canada rates increase, the higher the interest you can expect to pay on residential mortgages and home equity loans.

3 Things driving future home sales

As we look ahead to 2023, most experts are in agreement on several factors likely to drive real estate trends:

  1. Interest rates will continue to rise. According to Altrua Financial, the market consensus is that Bank of Canada rates will increase to a 4.25% high by the end of 2022—with further increases possible in 2023 if inflation isn’t on track to subside.
  2. Home prices will continue to fall. Pricing differences across provinces aside, Desjardins has forecast a 23% decline in the average home price between February 2022 and December 2023.
  3. The economy will begin to recover. In their fall update, CMHC suggests “the Canadian economy will enter a modest recession by the end of 2022 and start recovering in the second half of 2023”, while an earlier housing report predicted that “mortgage rates eventually start to stabilize in 2024.”

So what does all this mean for home sales?

In his October housing market outlook, TD Bank economist Rishi Sondhi concluded, “Ultimately, we think sales will bottom out at about 20% below their pre-pandemic levels in the early part 2023, while remaining very subdued for the rest the year.”

What homebuyers should know ahead of 2023

With mortgage interest rates trending upward—and real estate sales trending down—what should homebuyers and borrowers keep in mind as 2023 approaches?

For starters, if you began house-hunting earlier this year—and you haven’t adjusted your search criteria—it’s worth checking to make sure you’re not:

  • Looking at homes you can no longer afford (due to higher mortgage rates)
  • Ignoring homes that are now within your budget (due to lower house prices)

It’s also important to be aware of the connection between shifting house prices and the amount you can borrow against your house with a home equity loan or HELOC (home equity line of credit). Remember: From a lender’s perspective, the amount of equity you have in your home is equal to your home’s current market value minus the amount owing on your mortgage.

Finally, if you are considering getting a first or second mortgage, experts say the decision to choose a fixed or variable interest rate is key.

Before choosing one over the other, it’s a good idea to:

  • Carefully weigh your personal circumstances, finances, and risk tolerance
  • Ask your lender or mortgage broker for their professional advice

While this question is widely debated, National Bank says many economic experts believe that—in most cases—variable-rate mortgages are more beneficial in the long-term, compared to fixed-rate mortgages.

Bottom Line

If you’re struggling with the question of what to expect from the housing market in 2023, you’re not alone. Figuring out the right time to buy, sell, or leverage a home can be challenging. That’s why TD mobile mortgage specialist Marco Torto suggests house-hunters focus on what constitutes the right time for them. “In my experience, the idea that there’s a perfect time to buy is really unfounded.” According to RE/MAX Canada meanwhile, when making such a big, important purchase in a rising-rate environment, it’s critical that you figure out the dollars and cents of your household budget, contact and compare lenders and rates, and learn about the various terms and conditions.

Frequently Asked Questions About Home Prices & Mortgages

What’s the connection between inflation and lower home prices?

Because Bank of Canada rates are used to control inflation, when these rates rise, mortgage interest rates rise as well. This makes getting a mortgage more difficult and more expensive. With potentially fewer buyers able to qualify and/or afford a mortgage, house sales can drop off, cooling the real estate market and causing home prices to fall.

Is it worth getting pre-approved for a mortgage when home prices keep changing?

Even in an unsettled market, it’s worth getting a mortgage pre-approval if you intend to search for a new home. Not only are pre-approvals free, they’re typically valid for 90-120 days, allowing you to lock in a specific interest rate. They’re also a great way to clarify the home price you can afford.

How can I keep my mortgage flexible until interest rates settle down?

One way to stay more in control of your mortgage is to choose a shorter term. Although a 5-year mortgage term is traditional, some lenders offer 1 to 4-year terms as well. By committing to a shorter term, you’ll have the opportunity to change your mortgage payment options that much sooner.

What’s the main difference between fixed and variable mortgage rates?

With a fixed mortgage rate, the amount of interest you pay (and therefore, each of your mortgage payments) stays the same for the duration of your term. With a variable mortgage rate, the amount of interest you pay changes in response to your lender’s fluctuating prime rate.

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Leanne Armstrong

Leanne Armstrong is a HubSpot-certified freelance content writer specializing in business, technology and finance. As a former entrepreneur with a background in accounting and social psychology, she writes for a wide range of globally recognized organizations. Her work has appeared in publications like Forbes, Huffington Post and CanadianSME Magazine.