Ontario home prices will fall 24% by the end of 2023: Desjardins

Home sales have “fallen off a cliff” in Ontario, and prices are tumbling down after them.

Desjardins Economic Studies has revised its forecast for the province’s housing market, and now expects home prices to fall 24% from their February 2022 peak by the end of 2023.

Prices, already down 15% from the peak, were previously forecast to fall a total of 18% over the same time period.

The updated forecast is due to “quickly deteriorating” market conditions as well as mortgage rate hikes that have been larger and more frequent than anticipated.

Despite the significant correction, Desjardins still expects Ontario home prices to end 2023 roughly 15% higher than they were at the start of the pandemic.

“The housing market rolled over this spring. High prices and rising mortgage rates have eroded affordability, sales are down and inventory is on the rise,” Desjardins said.

“As a result, we’ve quickly gone from a seller’s market to balanced territory. Buyers are waiting on the sidelines, and in some markets where overbidding was rampant, prices are coming back to earth.”

With home sales expected to continue their decline in the coming months, a buyer’s market may be on the horizon.

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According to the Desjardins Affordability Index, almost every major market in Ontario was unaffordable in the first quarter of 2022.

Although prices have begun to fall across the province, with most Census Metropolitan Areas (CMA) seeing declines of 10% to 30% between February and July, Desjardins said affordability “won’t improve anytime soon” due to the continued rise of interest rates.

The Bank of Canada (BoC) is expected to hike interest rates even further before the year ends, bringing the key rate from its current 2.5% to 3.25%.

Rising borrowing costs, and soaring material prices, are also leading builders and buyers to press pause on new projects.

Although construction “remained strong” in the first half of the year, Desjardins says new builds are poised to drop nearly 20% in 2022 and 30% in 2023 in Ontario.

After rising quickly at the start of the pandemic, construction on single-family homes will fall “sharply,” while semi-detached homes, row houses, and condos will see a smaller drop.

Desjardins expects affordability to “finally” improve at the end of 2023 when the BoC is likely to start cutting interest rates, and after home prices have fallen further. Until then, the unaffordability of housing in Ontario will keep many would-be buyers in the rental market.