Canada’s real estate downturn will continue next year, warns a credit rating giant. Fitch Ratings released its 2023 forecast calling even lower home prices next year. After 3-decades of strong price growth without correction, affordability has never been worse. When combined with high rates, weak demand is expected in the near-term as home prices adjust. The market cooling is also expected to produce a sharp increase in delinquencies.
Canadian Real Estate Prices Are Forecast To Fall Next Year
Fitch Ratings is the latest firm to call falling real estate prices across Canada. Prices are forecast to fall between 5% and 7% in 2023, down 15% from peak to trough in nominal terms. Nominal terms being an important note to mention when inflation is so elevated. Prices are seen returning to growth in 2024, though lower than average.
“The fall will be driven by the continued rise in interest rates expected through 1H23, inflationary pressures, a stagnant economy and declining affordability, which will dampen demand,” said Susan Hosterman, Senior Director of North America for Fitch Ratings.
The decline is substantial but much smaller than forecasts from other firms. Hosterman attributes this to strong support for the market. A supply imbalance, net immigration, and rising rents are amongst the reasons cited. However, they warn demand can be weak if the economy is stunted by measures to cool inflation.
Speaking of higher interest rates, Fitch Ratings warns affordability has never been worse. Higher interest rates play a role, with the firm citing a five-year fixed rate at 6.5% (they need to find a better agent). Higher rates are only such a big issue due to astronomical home prices though. They note “persistently high home prices” haven’t seen a material decline since the 90s.
Canadian Mortgage Delinquency Rate To Rise Sharply
Canada’s mortgage delinquency rate will rise sharply in the coming months. Fitch Ratings has forecast an 0.25% delinquency rate in 2023, up 11 basis points (bps) from this year. The increase is very sharp, considering that it implies over 75% more mortgage delinquencies. The rate is still very low, and largely balancing the low rates typical of a bubble.
Yes, bubbles have low delinquency rates. There’s no reason to default if a home sells in just a few days, a point the firm emphasized. A borrower in a tough spot can sell and avoid a delinquent mortgage in a strong market. A lack of affordability and weak demand mean fewer people are willing to buy that property at this price. That is what typically leads to rising delinquencies.
Canadian homeowners are sitting on a mountain of equity that will help prevent too high of a rate. They can draw on, or borrow against, that equity if they’re in a bind with the cost of living. It also means they’ll be less likely to enter a negative equity scenario where a sale is forced by the lender.
Lenders have also been working with borrowers, as noted by the firm’s forecast. Banks have been providing amortization extensions to many existing borrowers. It will cost more, but it will lower the likelihood of defaulting due to higher rates.
Fitch Ratings is the latest firm to forecast falling home prices and rising defaults. Firms like BMO, Oxford Economics, and RBC have all called more substantial price drops. This is likely due to more bearish outlooks held by those firms in contrast. Fitch sees larger price declines if the recession isn’t just a mild downturn.
Credit Rating agencies are paid by the lenders they rate, so when they give a negative downturn but it’s mild—expect it to be a lot worse.
“Subprime is contained” haha
5% drop over 2023? That is laughable. I could show you homes in the GTA and surrounding areas that have dropped 20%+ over the last year and these homes are still sitting unsold.
That’s not across Canada though, right? Rising prices in Alberta because everyone is bananas boosts the average decline.
If the correction isn’t significant, then the downturn didn’t do anything to improve quality of life and you better believe they’re pushing us into a financial crisis.
It doesn’t matter who’s in government, they have to pander to the people who vote and that’s always homeowners. Don’t expect what’s right, expect what’s popular until it reaches absolute failure.
Is this about housing, healthcare, or public education? Kid, but just look around and it’s clear this is how people think when making policy. If you don’t vote and they know you don’t, you don’t matter.
These aren’t the immigrants or even Millennials making this call, since the have no influence on electing a government. This is what 60 year olds in small towns think, since they’re falling ass backwards into a pile of housing gold.
Even with 0% rates. It’s completely unaffordable for regular working class families. It’s always been majority money laundering and investors buying up these homes. The government already knows this. Even if the government never stepped in with higher rates, do people actually believe that prices will keep going up for ever. Panic is now setting in on the investors because they know they can’t charge enough rent to cover their mortgage payments. Tent cities are going to be everywhere. Or they’re going to be offering MAID to everyone 🙄
It isn’t just mortgage rates but the helocs needed to address those looming special assessments.
None of this happened overnight
That’s right.Baby boomers are laughing their way into their coffins with their cushy real estate portfolios.
Even the fact that their children and grandchildren will be inherriting all of that “wealth”, will not prevent affordability from being number one issue for decades to come.
I don’t really understand the prices going down 25% peak to trough as we’ve already had more on a national and Toronto basis (February 2022 to November 2022). Both average and median prices. They do say nominal, which is inclusive of inflation, but in reality this means that we’ve already bottomed out on price (or very close to).
Bank of Canada MUST drop interest rates to protect house prices from dropping.
Housing is Canada’s most important economic sector.
Tiff knows what he must do.
Housing is a basic need.
Every one should have a roof on their head. Don’t make it a business.
What everybody seems not to understand is the banks run the world the banks manipulate whatever they want the banks come up with different excuses in different reasons for raising or bringing the the rates down the banks lend money to the government they have so much power the banks run the world first you get the money then you get the power they got the money and they got the power and they put up people for us to elect they back them up they pay for the elections and when they’re empower they do exactly what the bank wants all the legislations that the bank
Wants if they don’t they lose the next election so you see they control us A to Z
I was around for many years observing housing market in GTA . Bought my first house with the down payment saved from extra jobs . I was very expensive 20 year ego . People were making less than now . My parents didn’t give me the money for down payment like kids expecting now days. Housing never was affordable and never will be . People talk about money laughing called foreign investment depending on different occasion . Politicians in current government promising not affordable housing but deeply deeply affordable housing . Federal housing minister Husain is about to make it happen !!!
“With the down payment saved from extra jobs”
Haha, that’s a good one to make us all laugh boomer.
Imagine if there was an extra job to be done on “spare time” that returns enough income to actually make a dent in the down payment.
Only incomes in the 1% are sufficient. We’re you making $150/hr in your second job?
Reality of today is governments choose between housing investors and regular people.
The only real solutions are to ban single family zoning and to institute a home ownership tax with teeth that comes with a deduction from income tax.
20 years ago housing was a lot more affordable then now. Brand new 3 bed room on Landstaff in Richmond Hill could be bought for $240000. In Hamilton you could have house for $150 000. 4000 sq. feet 4 bed rooms could have been had in Richmond hill for $330000-400000. Yes, salaries were smaller but not much smaller, while real estate rose 5 times on average. You do not imply that salaries rose multiple times since 2002. Regarding housing never being affordable. i have to terribly disappoint you. I was born in the country which after being leveled to the ground managed to build herself up and which provided housing basically as a right. We paid nothing for brand new apartments in new buildings. I mean USSR. All of us got one. The root of all problems in Canada and elsewhere is financial capitalism. Banks and investors run the show. They turned housing into investment vehicle and everything that is investment is supposed to grew in value. Here you go especially with housing being low risk investment that provide parasitic class with regular money flow. It doe snot matter who you vote in, under this arrangement housing will become completely unaffordable but for the wealthy as it used to be.
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/\ happy new years! Lmao
Move to Newfoundland,where housing is cheaper,freeze ya ase off for 10 months off the year and most everything else is more expensive.
Sounds like Ontario, but not like Saskatchewan. It is not very helpful to write such an article without to mention the enormous differences between provinces: I can’t buy a house in Ontario because the prices have doubled or tripled in areas where I am currently looking and the properties we own in Saskatchewan are not even selling for the prices we paid in 2013 and 2015. The real estate problem as it seems is not a Canadian problem but a provincial one.