Housing Market Predictions for Next 5 Years Canada: Trends and Forecast

As we look ahead to the future of the Canadian housing market, it's crucial to understand the trends and predictions that will shape the landscape over the next five years. As the President and Principal Broker of Clover Mortgage, I've been closely monitoring the market dynamics and gathering insights to provide you with a comprehensive outlook.

Key takeaways:

1. Gradual recovery in sales and prices over the next two years
2. Shift towards a more balanced market
3. Potential for significant growth in urban condo markets
4. Emerging opportunities in markets like Alberta
5. Continued importance of the stress test in maintaining market stability

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Current Market Overview

Recent Performance of the Housing Market

The Canadian housing market has experienced a rollercoaster ride in recent years. After a period of unprecedented growth during the pandemic, we’ve seen a cooling trend in 2023. This shift has been characterized by:

• Decreased sales volume compared to the peak years. Trends in existing home sales indicate that as interest rates decrease and economic conditions improve, we can expect stronger existing home sales, which may contribute to a rebound in the housing market in the coming years.
• Stabilizing prices in many regions
• Increased inventory levels

Factors Influencing Market Changes

Several key factors have contributed to these market changes:

1. Economic conditions : Post-pandemic recovery and inflation concerns
2. Interest rates : Rising rates have impacted affordability. Financing costs are affecting both homebuilders and potential buyers, making it difficult for builders to initiate new rental projects and for homebuyers to afford properties due to higher mortgage rates.
3. Supply-demand dynamics : Increased supply meeting pent-up demand

CREA Housing Market Predictions

The Canadian Real Estate Association's forecast provides valuable insights into the expected trajectory of our housing market.

Sales Predictions for 2024 and 2025

These projections suggest a gradual recovery and strengthening of the market over the next two years.

Average Home Price Projections

The forecasted price increases indicate a return to growth, albeit at a more sustainable pace compared to recent years. The expected price growth is driven by supply shortages and rising demand from potential buyers, which could lead to significant increases in home prices.

Implications of the Forecast

For buyers, this forecast suggests a window of opportunity in 2024 before prices potentially accelerate in 2025. Sellers, on the other hand, may benefit from holding onto their properties if they can, as values are expected to appreciate.

"The market is showing signs of stabilization, which is good news for both buyers and sellers. It's creating a more balanced environment for transactions, " says Victoria Ishai, Senior Mortgage Broker at Clover Mortgage .

General Trends in the Housing Market

Shift Towards a Healthier Market

One of the most encouraging trends we're observing is the movement towards a more balanced market. This shift is characterized by:

• More equilibrium between supply and demand
• Reduced bidding wars in many areas
• Increased negotiation power for buyers

Role of Interest Rates

Interest rates play a crucial role in shaping the housing market. Based on my analysis, I believe we're going to see some significant changes in the coming months:

• The Bank of Canada is likely to decrease overnight lending rates by 0.25% to 0.50% with each upcoming rate announcement.
• We expect the overnight lending rate to fall to between 2.0% to 3.0%.
• This will result in prime rates for most banks between 4.2% and 5.2%.
• Variable mortgage rates are likely to range from 3.2% to 4.2%.

These changes are expected to occur over the next 6 months to 1 year, potentially encouraging more buyers to enter the market.

Insights from the CMHC Report

The Canada Mortgage and Housing Corporation (CMHC) provides valuable insights into the long-term prospects of our housing market.

Home Price Peaks and Predictions for 2026

According to the CMHC report, we can expect:

• Home prices to potentially peak by next year. Trends in Canadian home prices indicate fluctuations due to supply and demand dynamics, with various factors impacting future housing construction and pricing trends across the country.
• New highs in home prices by 2026

This forecast aligns with my own predictions and suggests a period of growth on the horizon.

Economic Influences on Future Prices

Several economic factors will drive these price trends:

1. Population growth through immigration
2. Economic recovery and job market stability
3. Supply constraints in major urban centres

Looking Ahead: My Insights on the Canadian Housing Market

As we look towards the future, I'd like to share some of my personal insights on what we can expect in the Canadian housing market over the next 5 years.

The Return of Buyers

We're going to continue seeing the Bank of Canada making overnight lending rates decreases by 0.25% to 0.50% with each upcoming rate announcement until the overnight lending rate falls to between 2.0% to 3.0%. This means that the prime rate for most banks (which affects variable rate mortgages) will lie between 4.2% and 5.2%. As a result, most banks will offer variable mortgage rates in the 3.2% to 4.2% range. This will all happen over the next 6 months to 1 year.

As for fixed rate mortgages, currently they're starting in 4.49% to the 5.49% range on prime mortgages and I see them stabilizing in the 3.49% to 4.49%, also over the next 6 months to 1 year, though this depends on the direction of the bond market in Canada and the US.

Overall, due to the economic slowdown in Canada, rates are headed downward. As a result, I predict that the real estate market will start seeing buyers come back purchasing properties during Q4 of 2024 and continuing so into 2025 and 2026.

The Condo Market Boom

The condo market, particularly in major cities like Toronto, is poised for significant growth . Trends in the rental market and rental prices in these areas show fluctuations, with some cities experiencing sharp rises while others see price drops, influenced by economic conditions and market supply constraints. Here’s what I foresee:

• Demand for condos will increase as affordability becomes a key factor for many buyers
• Supply of new builds will be limited due to cancelled developments during the downturn
• We may see 1-bedroom condos in Toronto reaching $1 million in 4-5 years, similar to markets like Sydney

The Rise of Alberta

Alberta's real estate market is one to watch . As prices in Ontario, particularly in the GTA and Golden Horseshoe, become increasingly unaffordable, we'll likely see:

• Steady growth in Alberta's housing market
• Increased migration from other provinces to Alberta
• Rising interest from investors looking for more affordable markets with growth potential

The Impact of the Stress Test

The mortgage stress test has been a topic of much debate. While some have called for its removal, I believe it's likely to remain in place:

• The recent increase in defaults provides justification for maintaining the stress test
• It serves as a safeguard against potential future rate increases
• If removed, it would likely promote even more growth as people would qualify for larger mortgages

Fixed vs Variable Rates

In the coming years, we're likely to see some interesting dynamics between fixed and variable mortgage rates:

• Fixed rates are expected to stabilize in the 3.49% to 4.49% range over the next 6 months to 1 year
• This will depend on the direction of the bond market in Canada and the US
• Variable rates will become increasingly attractive as the Bank of Canada lowers rates

" Understanding the interplay between fixed and variable rates will be crucial for homebuyers in the coming years. It's not just about choosing the lower rate, but about aligning your mortgage with your long-term financial goals," advises Rushi Parikh, Mortgage Broker at Clover Mortgage .

Conclusion

The Canadian housing market is poised for an interesting journey over the next five years. While we've experienced some turbulence, the outlook is generally positive, with growth expected in sales, prices, and overall market activity.

As we navigate these changes, it's more important than ever to stay informed and make strategic decisions based on thorough market analysis and personal financial circumstances.

In this dynamic market, working with a knowledgeable mortgage broker can make all the difference . Whether you're a first-time homebuyer, looking to refinance, or considering an investment property, professional guidance can help you navigate the complexities of the market and secure the best possible mortgage terms.

At Clover Mortgage, we're committed to helping Canadians achieve their homeownership goals. Don't hesitate to reach out to our team of experienced mortgage brokers for personalized advice and solutions tailored to your unique situation.

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Remember, the key to success in real estate is staying informed and making strategic moves. Keep an eye on market trends, consult with professionals, and be ready to act when the right opportunity presents itself. The next five years promise to be an exciting time in the Canadian housing market – make sure you're prepared to make the most of it!