The Overall Tone of the Market Will Be Soft, Mr. Tal Says, but He Stresses That It Will Not Go Into Free Fall

The fog of uncertainty that has kept real estate sellers and buyers on the sidelines in recent months will start to clear in 2023, predicts Benjamin Tal, Deputy Chief Economist at CIBC World Markets. With stability in the market, sellers will be encouraged to list in greater numbers, Mr. Tal expects, and some distressed borrowers will add to the supply.

“That lack of listings now is protecting prices from going down farther,” he says. Pent-up demand from buyers will establish a bottom in prices by the spring, Mr. Tal said in an interview with the Globe and Mail published on January 11th, 2023. The overall tone of the market will be soft, the economist says, but he stresses that it will not go into free fall. Still, his forecast does not rule out some bumps along the way.

Mortgage Interest Rates

All of Bay Street is watching for the next signal from the Bank of Canada, which has raised its key interest rate from 0.25% at the start of 2022 to 4.25% today as it seeks to rein in inflation. It’s important that the central bank not overshoot, cautions Mr. Tal, who expects policy-makers to keep the policy rate at its current level, or possibly lift it one more time, to 4.5%. The economist cautions that some households are feeling the strain of dealing with higher interest rates for a prolonged period, and he does expect some borrowers to run into trouble if they need to renew their mortgages at higher rates this year. The greater pressure on renewals will come in 2024 and 2025, he predicts. At that time, buyers who were able to obtain a mortgage at 2.5% during the pandemic may be confronting a much higher rate.

Other Factors That May Impact Market Volatility

Mr. Tal also expects obstinate sellers to become more realistic about the price they will accept when they realize the conditions that led to the February 2022 peak won’t be returning soon. “The market will not go back to what it was, because what it was, was insane.” While Mr. Tal is not expecting a meltdown in Canadian real estate, he warns that there are some real risks to the scenario he has laid out, including the unpredictable actions of the Chinese government, Russian President Vladimir Putin and other world leaders.

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