2023 Real Estate Outlook
Paul Stevenson
Mortgage Agent Level 2 | Podcast Host of The Ottawa Real Estate Podcast
What does 2023 hold for the real estate market in Ottawa and Canada? Where are rates heading? If I own a home, what options do I currently have if I am struggling with payments and do not want to default or sell my home?
Welcome to 2023 everyone! I hope everyone was able to share the holidays with friends and loved ones. I feel blessed to have been able to share memories with my kids and family and have one of the most enjoyable holiday seasons of recent memory after a seemingly rollercoaster 2022. The last few years have provided us with unprecedented ups and downs in home prices, mortgage rates and everything in between.
Many clients and friends have been asking me where the market is heading in 2023 and if I am being completely transparent, with the way the market has acted lately, it's impossible to predict but I will still tell you what my outlook on this is. With regards to home prices and sales, I think after the decreases in home prices we saw in 2022, we will see things balance out in the early months of 2023 and start to pick up again in April or May. The Spring and Summer months always peak peoples imaginations about what property they could acquire or different renovations they could apply to their existing home which always causes the market to spike as more people are out shopping or forcing appreciation to the value of their home. Inevitably, the more people who are thinking of real estate, the more people are going to transact. More transactions means more demand and more demand means more supply is needed. As I said throughout 2021 and 2022, with Canada's plans for immigration and the 100's of thousands of people we will be welcoming to Canada, there is no doubt in my mind that the demand will outweigh the supply and thus will cause prices to increase as the year progresses and demand increases along with the population. There is no perfect science to this, but this is my opinion based on a multitude of factors being considered.
With regards to rates, fixed rates have seen a steady decrease since Q4 of 2022 due to the Canadian Mortgage Bond decreasing which directly correlates to fixed rates within Canada. Most fixed rates for a 5 year term are currently sitting between 4.59-4.99% depending on the file type, property type and term length. Variable rates, on the flip side, are still lingering in the mid 5's due to the Bank of Canada's (BOC's) seven rate increases in 2022, driving the prime lending rate of most lenders to 6.45%. If you are putting less than a 20% down payment on your primary home, lenders are currently willing to offer around a -0.90% discount off of prime which would still equate to 5.55%. In my 15+ years in the mortgage industry, I have never seen such a wide variance between fixed and variable rates in favour of fixed rates. Typically fixed rates hover anywhere from 0.50-1.00% higher than variable rates due to the inherent rate risk of choosing a variable rate mortgage solution. With the way the current economic landscape is in Canada, it will be very interesting to see what the BOC does on January 25th with regards to the prime lending rate. The other dates for the BOC rate announcements for 2023 are as follows:
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If the BOC choose to increase the rate again in January, which is plausible, this would certainly cause further financial stress on the majority of Canadian home owners who are currently in a variable rate mortgage. I anticipate that as fixed rates continue to decrease, we will see more variable rate clients paying a penalty to break out of their variable rate mortgage or convert from variable to fixed to lock into a longer fixed term. This will not only decrease their payments but also give them peace of mind in the coming years as the economy recovers from the passing pandemic. If I were buying a home or renewing a mortgage at this time, I would very strongly lean towards a 2 or 3 year fixed term or a variable rate. Why 2 or 3 years? I believe that we will continue to see fixed rates decrease in the coming 12-24 months at which time fixed rates will have dropped substantially from where they are currently. Taking a 2 or 3 year term would allow you to renew in seemingly a best case scenario with regards to fixed rates. On the variable side of things, if the fixed rates do decrease to a level you are comfortable with, you can convert your variable rate into a longer fixed term and lock in your savings.
The other side of the economic coin is existing home owners. They have likely felt the pinch (or punch I should say) of the recent decisions by the BOC to raise the overnight lending rate and in-turn increase the costs for variable rate mortgage owners. The BOC stated many months ago during the pandemic that "rates will stay low for a long time" and that home owners did not need to worry about increased costs of borrowing. They have since recently apologized for this misrepresentation of the landscape. For many of my clients, they are dealing with the stress of their mortgage payments increasing by as much as 70-80% on their variable rate mortgages. In some cases this can lead to the contemplation of selling their home or even potentially defaulting on their payments which would cause the bank to repossess their home. Believe it or not, mortgage default is unbelievably rare in Canada. According to the CMHC who insures mortgages in Canada, as of 2022, default rates in Canada were sitting at 0.16%. I would anticipate this will increase in 2023 to over 1%. You can see the province by province data from the CMHC here. If you are a home owner and reading this and you are struggling with your payments, there are options. Many people have been refinancing their mortgages to extend their amortization which results in lower monthly payments and more cash flow, and cash is going to be king for the foreseeable future. This has been quite common recently and certainly something I can assist you with if you are interested in discussing in greater detail.
I will be continuing with my articles every 2 weeks throughout 2023 to ensure my network is well informed to what changes are happening in the real estate industry. If you haven't already, please check out my website at www.paulstevenson.ca as well as follow me on all of my socials. I host a weekly podcast called The Ottawa Real Estate Podcast and new episodes are released every Tuesday at 10am on YouTube and all streaming platforms. Follow along and stay informed!
-Paul S