Immigration, Lower Rates and Pent Up Demand Will Determine the Direction of the Canadian Housing Market

Continued strong population growth from immigration, an eventual easing in financial conditions and pent-up demand are the factors that will drive improved housing affordability in Canada.

Farah Omran, Scotiabank's Housing Economist, outlines that scenario in her most recent Monthly Housing report as the Canadian housing market started to show signs of a rebound in March, with demand increasing and monthly home prices rising for the first time since the Bank of Canada launched its fight against inflation by raising interest rates.

So is this the time for newcomers to Canada to buy a home?

According to the Canadian Real Estate Association (CREA), home prices in Canada rose on a monthly basis in March after 12 straight months of declines.

The national home price index rose 0.2 percent to $709,000 from February to March, 

New listings hit a 20-year low

 Home sales also rose slightly for the second straight month, with more prospective home buyers entering the market after the central bank took a break from increasing rates.

Meanwhile,  with many homeowners continuing to not put their homes up for sale, the number of new listings fell 5.8 percent in March. That's a 20-year low.

That lack of new listings may mean that most Canadian homeowners have managed to weather the increase in borrowing costs caused by the Bank of Canada's interest rate hikes without being forced to sell (as many experts predicted would happen).

March trend called a reversal

Bank of Montreal senior economist Robert Kavcic recently noted that “Potential sellers don’t want to sell into a down market."

 

While cautioning against reading too much into March numbers, Scotiabank's Omran describes what's happening as a "reversal."

 "If this trend continues," she said, "it would be best described as a reversal rather than a recovery with a return of demand that is not coinciding with a meaningful increase in supply."

Will house prices continue to fall in 2023?

And while Omran says she still believes that prices may fall a bit more, she is "less confident of this" given signs of a rebound in demand with a still-low inventory.

According to the Toronto Regional Real Estate Board, in March 2023, the average price for a home in Toronto was $1.05 million. That’s down 1.5 percent (or $16,480) from February 2023. It's also down 13.5 percent (or $163,983) compared to March 2022.

CREA has said it expects the average price of a home across Canada to fall by 4.8 percent by the end of 2023. That forecasted 4.8 percent drop is based on the average price of a home as of Dec. 31, 2022.

That prediction, if accurate, again indicates that 2023 might be the year for newcomers to enter the home-buying market.

Immigrants arrive with plans to buy

Canada intends to welcome 465,000 new immigrants this year after admitting a record-breaking 431,000 newcomers in 2022, mainly from India, the Philippines and China.

In 2024, the country hopes to land 485,000 newcomers, followed by 500,000 in 2025. 

And immigrants to Canada arrive planning to buy their first new home faster than ever.

A 2022 study by the research firm Ipsos Public Affairs found that a large percentage of newcomers to Canada are homebuyers within their first five years of arriving. 

FHSA makes saving for a home easier

That confirms a similar 2019 pre-pandemic study by Royal LePage that found that although 75 percent of newcomers arrive with savings to buy a home, the average time immigrants wait to purchase a home is three years.

 The study also found that one in five homes is purchased by Canadian newcomers.

And according to Vimal Sivakumar, writing in the CIC News, a recent move by the Canadian government will now make it easier for newcomers to save for their first home because of a new tax-free First Home Savings Account (FHSA). You can read Vimal's full story here.

More income needed to buy a home in 2023

A recent story by  Jennifer Ferreira of CTV News describes how more income is needed to buy a home in cities such as Toronto and Vancouver as of March 2023, according to Statistics released by Ratehub.ca on April 17 compared to the same time last year.

Ratehub.ca co-CEO James Laird says buying a home has become more expensive year-over-year due to rising mortgage and stress test rates.

The data compiled by Ratehub.ca writes Ferreira, shows homebuyers must make between $5,650 and $21,360 more per year to purchase a home in major Canadian cities in March 2023, compared to March 2022. 

Meanwhile, Jill Oudil, CREA's chair, said that the competitive market situation prior to the second quarter of 2022 is merely "on pause" and has not gone away.

Stabilization and affordability predicted

In its annual Housing Market Outlook, the Canada Mortgage and Housing Corporation (CHMC) also speculates that price declines will cease sometime in 2023, with the ever-rising arrival of newcomers creating stabilization.

The CMHC report says that prices will not approach pre-COVID-19 levels.

Still, Omran sees more stabilization and affordability on the horizon heading into 2024, due in part to the continuing arrival of newcomers.

"With the eventual easing in financial conditions expected next year, " she said, "combined with the reduction of prices that has already occurred, affordability will likely improve at a time when there is pent-up demand from both the erosion of affordability up to this point (with higher mortgage rates more than offsetting declines in prices) and strong population growth."

Clearly, historic levels of immigration are not only driving historic job growth, and they also appear to be positioning Canada’s housing industry for much more than a reversal in the long term

*No AI-Generated content was used in the writing of this story, and all sources are cited and credited where possible