What to Expect from the Canadian Real Estate Market in 2023 and 2024
The Canadian real estate market is currently going through a time of great change due to various financial, environmental, and social factors. With the sudden increase in interest rates, inflation, and political uncertainty, buyers, sellers, investors, and developers are all facing both difficulties and possibilities. Some of the key trends and predictions for the Canadian real estate market in 2023 and 2024 are based on the latest reports from PwC Canada1 and the Canadian Real Estate Association (CREA)2.
A Period of Price Discovery and Capital Constraints
Canadian real estate companies are anticipating a change in the availability of capital in 2023. The CREA forecast predicts that various forms of debt and equity capital will be less accessible than in 2022 due to institutional investors becoming more selective and cautious. This could impact the investment and development strategies of real estate companies and the financing options available to buyers. As a result, the Canadian real estate market is predicted to enter a phase of price discovery in 2023 as buyers and sellers adjust their expectations and behaviour to the new reality. According to CREA, national average home prices are expected to fall by 4.8% annually to $670,389 in 2023. This decline is partly due to an increase in sales in lower-priced regions and segments. The actual price changes will depend on local supply and demand conditions, as well as the type and quality of properties.
A Growing Urgency around Sustainability and ESG Matters
In the coming years, the Canadian real estate market will be significantly impacted by a focus on sustainability and Environmental, Social, and Governance (ESG) considerations. A report by PwC Canada shows that real estate firms are under increasing pressure from stakeholders like investors, tenants, regulators, and communities to combat climate change and minimize their carbon footprint. The report also reveals that many companies are striving to achieve net-zero emissions, which is not only a vital objective but also a competitive advantage that attracts investors and customers.
The report highlights that sustainability encompasses more than just environmental concerns. It also includes social and governance factors such as diversity, inclusion, health, safety, accessibility, affordability, and community engagement. Real estate companies that prioritize and excel in these areas can enhance their business's value and resilience while benefiting stakeholders.
A Need to Find Meaningful Solutions to Housing Affordability
One of the significant factors that will impact the Canadian real estate market in 2023 and 2024 is the urgent need to address the housing affordability crisis that is affecting a large number of Canadians. According to a report by PwC Canada, this issue is not merely a social concern but also an economic one, as it hinders labour mobility, productivity, innovation, and the competitiveness of Canada. The report suggests that real estate companies have a responsibility and an opportunity to help resolve this problem by increasing the availability of housing across the entire range, from rental to ownership, catering to people with different income levels.
The report offers potential solutions to tackle the problem of housing affordability. These solutions include modular construction, co-living/co-working spaces, laneway housing, micro-units, mixed-use developments, transit-oriented developments, public-private partnerships, land trusts, tax incentives, regulatory reforms, and innovative financing models. The report stresses that the cooperation of different stakeholders, such as governments, developers, investors, lenders, builders, operators, tenants, homeowners, non-profits, and communities, is crucial to implementing these solutions.
A Return to Growth and Trend in 2024
The Canadian real estate market may face challenges and uncertainties in 2023, but the long-term outlook remains positive. Demand fundamentals are strong and new opportunities will arise. The Canadian Real Estate Association (CREA) predicts that national home sales will increase by 13.9% to 561,090 units in 2024. This is due to the return of housing markets to normal and monetary policy moving towards a more neutral stance. The forecasted activity in 2024 would still be below the record level seen in 2021, but it would bring it back in line with the long-term average and above the 10-year average. Additionally, the national average home price is expected to recover by 4.7% from 2023 to 2024, reaching around $702,200, which is similar to the prices seen in 2022.
To succeed in today's unpredictable landscape, it is important to be patient, adaptable, and willing to take bold steps to achieve long-term growth beyond 2024. Real estate businesses that can adjust to the shifting market, seize new opportunities, and prioritize fundamental drivers will secure ongoing success in the future.