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Housing Market Predictions for 2023

Unless you have been living under a rock, you know that we are in the middle of an interesting time in the housing market. Inflation is near a 40-year high. To combat that, the Bank of Canada has increased interest rates at the quickest pace in 30 years.

All of this has a big impact on the real estate market. The housing market is shifting. We’ll look at what to expect and why, as well as how homeowners, sellers and buyers can all prepare.

The housing market is shifting again: What to expect and why?

The housing market is shifting. What’s a homeowner to do? Here’s what to expect and why.

More challenging affordability

Interest rates are rising at their quickest pace in 30 years. It’s no surprise that the affordability of real estate is becoming even more challenging. Buying a home in big cities in Canada like Toronto and Vancouver was already too challenging to begin with. Couple that with raising interest rates and it becomes even more difficult. The mortgage stress test isn’t helping either.

The stress test requires homebuyers to qualify at a rate two percent higher than their current rate when it’s higher than the stress test rate. The stress test rate is currently sitting at 5.25 percent. Being that high, both variable and fixed rate mortgage holders are being forced to qualify at two percent higher than their rate. This is the first time this is happening since the stress test was introduced several years back. This means that you could see your home purchasing power drop by 10 to 15 percent or even more in some cases, all because of the stress test.

The Office of the Superintend of Financial Institutions (OSFI) has gone on the record to say that they don’t plan to adjust the stress test. Therefore, it’s important to get used to and adjust based on the current mortgage rules as they stand.

Home sales to decline

Home sales and interest rates have an inverse relationship. When interest rates are low and money is cheap to borrow, home sales tend to be higher. However, the opposite of this is true. When interest rates are higher and money is more expensive to borrow, home sales tend to be lower.

With the low-interest rate environment gone, for the time being, it should come as no surprise that home sales across Canada have been tumbling. Cities like Toronto and Vancouver have been especially hit hard. If we look at Toronto as an example, home sales are down a whopping 34 percent from last year.

We can expect that trend to continue, as long as interest rates continue to stay at this level and rise. We aren’t likely to see the volumes of homes sold that we did in 2020 and 2021 until interest rates fall back to the level they were then.

Home prices to decline

Similar to home sales, home prices are closely related to interest rates. Like home sales, when interest rates are rising, home prices tend to decline, like what we’re seeing now. Although, home prices haven’t declined as much as home sales. That’s because home sales are a leading indicator between the two. When home sales have declined, it usually takes a while for the numbers to show up in home prices.

If we use Toronto as an example, the average home selling price is actually up. It’s up by 0.9 percent for all types of homes to $1,079,500. However, I wouldn’t expect that trend to continue. I would expect home prices to start declining year over year if interest rates remain high. I wouldn’t predict home prices to decline by huge amounts, like 25 or 30 percent. A single-digit decrease in home prices is more realistic.

How to prepare as an owner/seller/buyer

We’ve accepted that the housing market is shifting. Here are some things you can do today to prepare as a homeowner, seller and buyer.


If you’re in the market to buy a home, during this rapidly rising interest rate environment keep in constant contact with your mortgage professional. Make sure you have up-to-date mortgage pre-approval numbers.

Even if you were pre-approved for a mortgage just a couple of months ago, the numbers may no longer be accurate. Each time the Bank of Canada raises interest rates, it’s a good idea to touch base with your mortgage professional. Make sure you can still spend up to the amount you were previously pre-approved for.

The home price ceiling may change depending on how much you wanted to spend and whether you were planning to go with a fixed rate or variable rate. Your mortgage professional can advise you accordingly.

Home seller

If you’re planning to move up in the real estate market, you might reconsider your strategy of buying first and selling after. By doing this, you run the risk of getting caught if the real estate market changes a lot from when you buy and when you list your home after.

I can understand why you might want to buy first and sell after. You don’t want to get stuck renting and putting your stuff in storage. It’s just easier to buy first when you find a home that suits your needs. However, if you plan to do that, try to list your home right away after buying a home.

By doing that, you can reduce your chances of having the market change on you. Since you’re buying and selling in the same market, it’s a bit of a wash, and you shouldn’t come out further ahead or behind.


If you’ve been a homeowner for the last couple of years, you probably have a lot of untapped equity. If you’re planning to use that equity, it would be a good idea to use it sooner rather than later. Waiting too long could mean that your home could decline significantly in value and you might not have as much equity available as you originally thought. Or, in a worst-case scenario, you might not be able to refinance at all. A higher mortgage stress test could mean that you don’t qualify to pull out as much equity as well.

Common reasons you might want to refinance include:

  • Consolidating high-interest debt (credit cards and lines of credit)
  • Home renovations
  • Buy a rental property
  • It’s a good idea to speak with a mortgage professional and see if refinancing would be of benefit to you.

Final thoughts

A lot is happening in the housing market, but there’s no reason to panic. By gaining a better understanding of what’s going on, you can better prepare for the current situation and for the months ahead. Homeowners, sellers and buyers all need to prepare in different ways. By taking the necessary steps to prepare, all parties can navigate the current times and come out on the other side ahead.

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