Real estate: 5 things to know before buying in 2023
As 2023 progresses, the real estate market should return to equilibrium.
After more than two years of racing, frantic sales and one-upmanship, the real estate market has finally caught on. So we wonder what 2023 has in store for us. If you're considering buying a property this year, here are five things to remember.
A price drop on the horizon
After spectacular price increases of nearly 20% per year in Quebec in 2020-2021, the last months of 2022 were marked by a sharp slowdown: sales slowed (-13.04% in 2022 according to Desjardins) and the prices stopped rising at breakneck speed. According to Philippe Lecoq, president of Proprio Direct, we can initially expect prices to stabilize in 2023 throughout the province.
“The Canadian Real Estate Association (CREA) forecasts that the average price of properties should increase by 0.5% in 2023. We were in a seller's market and we are heading towards a balanced with more properties for sale and weaker demand than in previous years,” he explains.
In Montreal, we could even see a drop. Indeed, in its latest report, the firm Royal LePage predicts that “in the Greater Montreal area, the price of aggregate properties in the fourth quarter of 2023 should decrease by 2.0% compared to the fourth quarter of 2022, for reach $532,238”.
According to the experts, the phenomenon of one-upmanship, which had become very common since 2020, should become very marginal, or even disappear. In the greater Montreal area, the trend had peaked in the spring of 2022, recalls Hélène Bégin, senior economist at Desjardins. No less than 30% of properties were sold at a price at least 10% higher than the list price.
“In October, according to the CREA, less than 5% of properties were sold at higher prices. As the market has slowed down, it is a practice that has almost disappeared and that we should not observe much in 2023”, she underlines.
And mortgage rates?
This is THE question that everyone asks with a bit of concern. After successive increases throughout the year, mortgage rates will remain high in 2023, although they should eventually stabilize and then fall.
“We anticipate a rise in mortgage rates approximately until mid-2023 and thereafter, when the inflationary environment is better controlled, we could see slight gradual declines during the second half of 2023 and in 2024”, explains Francis Cortellino, Economist at Canada Mortgage and Housing Corporation (CMHC). However, the expert does not expect that we will find rates comparable to those observed before 2022 in the near future.
Not easy for first-time buyers
In this context where rates are “the highest since the last recession in 2008”, as Hélène Bégin points out, access to property is not going to improve much in 2023. “It will particularly affect first-time buyers who don't have a big down payment,” she points out.
A point of view shared by Francis Cortellino. “Even if prices go down, mortgage rates are not going to make affordability better. It will still be an issue for many people and it will ensure that the number of property sales will continue to decline this year, ”he adds.
New construction lagging behind
For those who want to buy new, there will be fewer options. Indeed, the number of housing starts will drop to a level similar to that of 2019. “There will be fewer new constructions, notes Hélène Bégin. Housing starts had already fallen by 10% in 2022 and are expected to fall by another 20% in 2023.” The new home market will therefore be less dynamic than in the past two years.