Housing Market 2023

2023 is the Year of the Rabbit symbolizing peace and prosperity, while 2022 was all about the three ‘i’s—inflation, interest rates, and inventory constraints. Never in history has there been a rate move like we saw on a percentage basis, with the prime rate capitulating 163% in just ten months. The Bank of Canada hiked its key policy rate seven times consecutively to 4.25%, though it seems the market hasn’t adjusted to these higher rates yet. The consensus among many economists suggests the tightening cycle may be nearing the end, and Spring 2023 will indicate whether buyers and sellers have adjusted to the high borrowing costs and participate more actively.

Downward pressure on home prices continued, dropping nine months in a row since peaking in March 2022. The Real Estate Board of Greater Vancouver reported total residential home sales in 2022 at 28,903, decreasing by 34% from the previous year—13% below the 10-year sales average. Listings on the MLS® reached 53,865, representing a 14% decrease compared to the 62,265 homes listed in 2021. In December 2022, home sales decreased by 52% year-over-year—38% below the 10-year December average. New listings were at 1,206, a 38% decrease year-over-year, and a 61% decrease month-over-month.

The sales-to-listings ratio is 18%; 12% for detached homes, 20% for townhomes, and 22% for apartments. With 88% of houses on the market not selling, waiting to list may ultimately affect how much equity you can extract. Nearly double the amount of detached listings expired on January 1st, 2023 compared to the year before. The supply problem is likely to worsen this year, as some sellers opt to rent out their homes rather than sell into a tough market.

Immigration, Refugees and Citizenship Canada (IRCC) said the country added more than 431,645 new permanent residents in 2022—the largest annual increase of residents in Canadian history, breaking the prior year’s record of around 401,000 newcomers. 2023 will have a focus on housing affordability, and the focus may shift to condominiums as they have a more attractive price point, and investors are able to achieve higher returns because of the sharp rise in rental prices and immigration. 

New financial products are emerging in the form of downpayment assistance, private equity, and fractionalization as with US based company Pacaso. Co-ownership is on the rise, as Freddie Mac reported between 1994 and 2022, that purchase loans from young adult borrowers aged 25-34 had a co-borrower aged 55+ on their application. That strategy didn't bode so well for a group of 5 friends who pooled funds together as a way to get into the Vancouver housing market—investing in a new duplex in East Vancouver, only to have it go up in flames.

OSFI confirmed the mortgage stress test is here to stay, meaning homebuyers are subject to the minimum qualifying rate of 5.25% or your mortgage interest rate plus 2%—whichever is higher. If you already have a mortgage, you'll need to pass the stress test if you refinance your home, switch to a new lender, or take out a HELOC.

"Sound mortgage underwriting includes a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of negative financial shocks, such as a reduction in income, an increase in mortgage interest rates or related housing expenses. In an environment characterized by rising mortgage interest rates, sustained high inflation and potential risks to borrower income, it is prudent that lenders continue to test borrowers for adverse conditions. OSFI will continue to evaluate the impact of its guidance and policy tools and is prepared to make changes at any time if conditions warrant."

The purchase of residential property by non-Canadians is prohibited as of January 1st, 2023, with the following exceptions: