An unexpected surge in Canadian home sales and average prices in the first half of 2023 will likely lose steam in the second half of the year, predicts Rishi Sondhi, economist at Toronto-Dominion Bank.
Mr. Sondhi recently revised his national housing forecast for this year to reflect his view that sales will dip in the third and fourth quarters, reversing part of the surprising growth that was most pronounced in Ontario and British Columbia, while prices may still edge up but at a slower rate.
He said that during the market downturn of 2022 and early 2023, sales undershot economic fundamentals such as income and population growth. With the recent rebound, however, the gap has mostly been closed.
“It just shows the pent-up demand that was just waiting with bated breath,” Mr. Sondhi said in an interview. “People just pounced into the market.”
He said the Bank of Canada’s recent decision to increase its key interest rate by 25 basis points will likely put a chill on buyers who went rushing into the market after the bank paused rates earlier this year. Mr. Sondhi now expects a similar rate hike this month.
Mr. Sondhi added that the sharp rise in prices also worsened affordability, which could also hamper the market.
Mr. Sondhi updated his forecast before June sales numbers were in, but he said early signs were pointing to a soft month. Listings picked up slightly in June, but inventory remains low compared to historical levels, he adds.
“We’re still not seeing this surge in supply.”
While tight supply may nudge the average national price higher in the third quarter, he predicts prices to drop slightly in the fourth. He expects sales to be about 5-per-cent lower in the fourth quarter than the second.
Mr. Sondhi still expects to see modest growth in sales and the average price across the country in 2024, though he has trimmed his forecast to reflect a cooler pace of quarterly increases.
Real estate brokers say they are also seeing things slow down after a rush of sales in the spring.
Elise Kalles, broker at Harvey Kalles Real Estate Ltd., notes that the market moves in cycles, but her office is still seeing competition in some pockets. Ms. Kalles said one house listed with the firm recently drew 18 offers and sold for $1-million above the asking price of about $3.2-million.
Paul Maranger, broker at Sotheby’s International Realty Canada, has seen an increase in listings in recent weeks, but he said overall supply is still thin.
Mr., Maranger said that at this time of year, parents are busy with the end of their kids’ school year, and some homeowners spend much of the summer at the cottage. He said he expects normal sales volume for July and August, which typically move at a slower pace than the spring rush.
“I would say we are in light seller’s market territory,” he said, though he added that buyers are cautious if they believe sellers are asking too much.
Mr. Maranger says move-up buyers were hesitant last year in the upper tiers because many are self-employed or business owners. He said prospective buyers who were concerned about the health of the economy and the impact on their business put sales on hold.
“I think you can only hold back in Toronto for a certain period of time. Then you have to move forward.”
After the more relaxed summer market, Mr. Maranger expects to see the usual increase in listings after Labour Day. He predicts some homeowners who have been struggling with higher interest rates and inflation may decide to sell, but he’s not expecting a flood of supply.
“We’ll see anxiety sales,” he said. “But we’re not going to see panicked sales with silly low prices.”