Canadian average home prices skyrocket

The average home prices have skyrocketed in Canada.

The conclusion of 2023 is expected to see a staggering increase in Canadian average home prices, ascending from $757,100 in the final quarter of 2022 to an anticipated average of $821,454. 

This bold forecast was made by Royal LePage which revised its initial projection of a 4.5% increment, made in April, to a hefty 8.5%

The surge in estimation hinges on the lively real estate market activity witnessed during the year’s first half.

Striking a note of caution, Royal LePage expects the price growth to lose its steam as 2023 edges towards its closure, citing the influence of recent hikes in interest rates by Canada’s central bank. 

Canadian average home prices skyrocket

Consistent demand triggered by immigration

But don’t wait for cheap real estate prices. The enduring scarcity of property listings coupled with consistent demand triggered by immigration will ensure a steady upward pressure on the housing market.

The onset of 2023 saw the Canadian housing market on a hot streak, with home prices climbing from $612,855 in January to a robust $728,972 by May. This formidable growth, coupled with skyrocketing sales, rang alarm bells for the central bank. The bank, in turn, jacked up rates to an eyebrow-raising 5% on July 12, the highest in over two decades.

The central bank justified the rate increases by pointing to the economy’s unexpected vitality. This included the housing market which, despite an overall scarcity of supply, has demonstrated an impressive resilience. But with the rate hikes, the market showed its first signs of a slowdown. 

June figures for Toronto recorded a significant sales drop of 17%, ending a four-month winning streak. Signs of cooling down in other markets also started to appear with a 2.7% dip in prices reported in June.

Keep in mind that a sales drop does not equal a price drop.

Vancouver and Calgary House Prices Have Been Going Up

Notwithstanding the emerging cooling trends, some cities like Vancouver and Calgary still observed rising home prices and sales in the previous month. 

Royal LePage remains optimistic that markets will adjust to the central bank’s more stringent measures. It states that despite the onset of higher interest rates, buyer demand has hardly waned, especially among those who have locked in their rates.

The report anticipates that the initial increased carrying costs will soon become more manageable, assuming that the current rates are nearing their peak. Those individuals, determined to secure a home within the year, are poised to accept this temporary reality.

The homebuyers who made their purchases amidst the 2019- early 2022 market frenzy are set to be rewarded handsomely as prices rebound from the correction triggered by earlier interest rate hikes

Series of rate hikes in Canada

The start of 2022 saw a rush to capitalize on super-low borrowing rates, pushing the national average to a record high of $816,637. But a series of rate hikes led to a drastic 30% fall in property prices.

For those homeowners who grimaced as their property values took a dive, there is hope on the horizon. The report suggests that the current prices are on the cusp of offsetting those losses, with the average home price in the second quarter just 5.6% shy of the peak reached earlier this year.

Why House Prices Will Continue Going Up

In the chess game of Canada’s housing market, interest rates are the queen. The game can pivot and as interest rates rise, house prices in Canada could follow suit.

A logical argument would forecast that higher interest rates dampen the housing market. Mortgages become costlier, potential buyers retreat and prices should drop. But the market isn’t a flat chessboard; it’s a Rubik’s cube, twisting and turning in unexpected ways.

Bank of Canada

The Bank of Canada, our faithful Chessmaster, uses interest rates as an economic lever. 

Since 2008, rates have lounged at historic lows, fueling a borrowing frenzy. Then came the economic nightmare of the COVID-19 pandemic. The Bank responded by chopping rates, dipping to 0.25% by mid-2020. 

Now, imagine a pendulum. After a long swing towards lower rates, a return movement is anticipated. Markets react, not just to the present, but to the future too. This anticipation can spur a housing rush, causing prices to surge.

Think of it as shoppers cramming a store before a sale ends. Fearing higher future mortgage costs, buyers jump into the market, eager to secure lower rates. Demand increases, supply struggles to keep up, and home prices ascend.

Average home prices in Canada

Canadian housing isn’t immune to global trends either. Foreign investors consider cities like Vancouver and Toronto as stable markets to park their funds, like squirrels storing acorns for winter. Higher Canadian interest rates can boost the value of the Canadian dollar, making our real estate more enticing. An influx of foreign funds can increase house prices.

Vancouver experienced this phenomenon in 2018. Despite the Bank of Canada’s rate hike of 1.75%, foreign buyers pumped money into the market. The city’s home prices swelled by 3.5%, according to the Real Estate Board of Greater Vancouver.

Location matters too. Cities are like hives, buzzing with activity. When interest rates rise, the demand in larger cities may remain sturdy. 

The bee still needs its honey, after all. 

In 2020, the Canadian Real Estate Association reported that urban markets like Toronto and Vancouver saw price growth despite higher interest rates.

Economic resilience is another part of this complex machine. During a thriving economy, people’s earnings generally increase. Picture a rising tide, lifting all boats. This can offset higher mortgage costs, keeping demand for housing robust, and pushing prices up.

Higher interest rates in Canada

According to Statistics Canada, in the last two decades, there has been an average 2.7% annual increase in wages. This, coupled with higher interest rates, may actually enhance purchasing power and sustain housing prices.

But as the game unfolds, remember: like the chess queen, interest rates hold considerable sway. But, they aren’t the only pieces on the board. In the Rubik’s cube of housing markets, multiple factors interlock, making each move, each twist, a new challenge.

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