Canadian average home prices are expected to drop by up to 25 per cent by early next year, but the decline will likely be less pronounced in Nova Scotia due to its rapid population growth and tight market.
A new report from TD Bank suggests the average price of a home in Canada could fall 20 to 25 per cent from its peak seen earlier this year to the first quarter of 2023, with the steepest drops expected in Ontario and British Columbia.
According to TD economist Rishi Sondhi, higher interest rates are helping to cool the market, but are still “challenging affordability.”
As well, the projected decline is more of a “recalibration,” he said.
“You’ve got to remember that during the course of the pandemic, average home prices went up by nearly 50 per cent,” Sondhi said in a recent interview from Newmarket, Ont.
“So even if they were to fall by 25 per cent or so, on balance, they’re still well above what they would have been prior to the pandemic.”
In New Brunswick and Nova Scotia, home prices are expected to fall by about 15 and 20 per cent, respectively, by mid-2023 – but as Sondhi notes, the pandemic price growth was much steeper in the Atlantic region than it was in the rest of the country.
In Nova Scotia, for instance, average home prices went up by about 60 per cent over the course of the pandemic.
“A 20 per cent retracement after such a big increase, that’s not great from a new homeowner’s perspective,” he said.
Even with the projected price drop, affordability will remain a challenge, said Sondhi.
“It’s certainly a difficult market out there for first-time homebuyers. I don’t think it really changes the calculus too much,” he said.
“Prices will come down a little bit – well, actually, a lot – but, in the context of how much they ran up, a little bit. So that means affordability … is not going to improve that much.”
People moving to Atlantic Canada in ‘droves’
Sondhi said the Atlantic region won’t see as sharp a decline in home prices as in other regions due, in part, to its “robust” population growth.
That growth is partially driven by non-permanent residents like students, as well as the Atlantic immigration pilot – but the biggest factor is interprovincial migration.
“People have basically been leaving from Ontario in droves, and they’ve been settling in many parts of the Atlantic region,” said Sondhi.
“That’s a little different than, say, an immigrant coming to the Atlantic region. Their homeownership rates tend not to be that high initially, but someone coming from Ontario is probably going to be more likely to buy than rent, for example, so that’s more an immediate impact on demand there.”
Another factor is markets remain tight from a supply-demand perspective – something that preceded the pandemic but worsened over the course of it, said Sondhi.
However, he noted that while the economy in the Atlantic region is growing “quite rapidly” for now, he expects it to slow down over the next year due to inflation running “rampant,” which will have an impact on household incomes and consumer spending.
“The economic situation may turn a little bit to the negative,” he said. “That will limit any sort of short-term recovery in home prices that one could expect.”
‘Wait for the right opportunity’
In an interview, Matthew Wheeler, a Halifax-based mortgage consultant, said the province was “primed for a growth” in real estate prices, even before the pandemic.
He said the main driver of that was employment. While previously many of the well-paying jobs were in government, more opportunities began to arise, especially in the engineering and tech sectors.
“Now there’s much more ability to come here and earn a very good salary right off the bat, where previously you would have to go out west, get experience, and come back,” he said.
Nova Scotia also began attracting more immigrants in recent years, which also put more demand on the housing market.
But demand really began to grow during the pandemic, when people who were stuck at home anyway wanted to look for a better place to hide out from the virus.
With the pandemic bringing forth a rise in remote work, the province also became more attractive to people from larger urban centres like the Greater Toronto Area, who could cash in their more expensive properties and buy a cheaper place in Nova Scotia.
Wheeler said the first quarter of 2022 was “the craziest period we have ever seen,” with extremely low supply and high demand.
While higher interest rates have helped lead to a price correction, he said there’s still a surplus in demand and not enough inventory.
Wheeler said even though prices are expected to decline further, those looking to buy a home should do so when they are able to, rather than gambling on a further drop.
“Waiting for the market to bottom out probably (is) not always something you can time,” he said.
“The message right now is to prepare yourself, get everything ready, understand what your numbers are and wait for the right opportunity.
“And when the opportunity comes, be ready to jump on it.”
— with files from Graeme Benjamin