If there’s ever been a constant about our real estate market, it’s this: people always want to know whether it’s going up or whether it’s going down.

Actually, scratch that.

If there’s ever been a constant about our real estate market, it’s this: Toronto is too expensive.

Actually, scratch that.

Can’t it be both?

Based on the comments from TRB readers so far this year, I’d say the people are pretty mixed on where market activity and prices are headed.  It seems to me that our split between bullish outlooks and bearish outlooks are about 60/40, but this is based on who responds.

Agents are bullish, that’s for sure.  But to be fair, some agents are bullish because they’re out in the field and seeing things first hand, and others are bullish because they simply feel the need to be.

The media is bearish, but that’s got the obvious asterisk attached.

And what of economists?

They’re typically a bit more conservative in nature and while I would argue that some have been wrong more often than right (like the guys calling for the market correction every year for a decade…), their insights are going to be interesting no matter what.

This past week, I read not one but two economic forecasts from noteable institutions and economists, RBC and Desjardins respectively.  While one of these reports is Canada-wide, one is Ontario-wide, and neither is Toronto-specific, we should take a look to see what some of the bright minds are thinking.

Up first, RBC’s Canadian Housing Market Outlook, which is titled, “Bottom Of The Downturn Is In Sight.”

Here’s the link: RBC Special Housing Report

The report is too lengthy to replicate in full, but let’s take a look at some of the more important sections

The Canadian housing market correction has yet to run its course but it’s gradually letting up. We think activity will hit bottom sometime this spring. Prices will level out a few months later—provided the Bank of Canada is done raising interest rates. All told, our forecast calls for a 15% peak-to-trough decline in the national RPS Home Price Index. Roughly half of that is still to come.

Let’s break that down, since you could take 3-4 word snippets of this and create an argument either way.

Negative: “The Canadian housing market correction has yet to run its course.”

Positive: “…but it’s gradually letting up.”

Positive: “We think activity will hit bottom sometime this spring.”

Neutral: “Prices will level out a few months later.”

Negative: “Our forecast calls for a 15% peak-to-trough decline in the national RPS Home Price Index.  Roughly half of that is still to come.”

That’s quite a bit to digest!

Personally, I agree with everything except “half of that is still to come,” as far as the Toronto market goes, but this report is looking at the whole country.

Then this part:

What happens next will disappoint housing bulls. We see the recovery phase starting slowly later this year as affordability issues and a weaker economy continue to hold back buyers. The pace should progressively pick up in 2024 once the economy clears its soft patch, inflation returns to target and the Bank of Canada reverses part of the massive rate increases it’s imposed since March 2020.

Booming immigration will fuel demand through the medium term (and possibly beyond), raising the odds of deep supply shortages in the future if homebuilding fails to pick up materially.

If there’s one constant among economists’ outlooks for the Canadian real estate market it’s that they all mention immigration.

This is something I’ve been writing about for years now.

With massively increased immigration targets and an existing lack of supply, there’s going to be an awful imbalance in the near future, and this is going to result in higher prices.

Hate me for saying it if you want to, but what other conclusion could we draw?

RBC’s report seems to agree:

From the report:

Could things heat up to an uncomfortable degree again in the future? We certainly wouldn’t rule it out. It’ll all come down to the supply response. And on that front, the recent track record for construction has been underwhelming. While homebuilding has picked up in Canada over the past three years—housing completions rose from less than 190,000 units in 2019 to roughly 220,000 units in 2021 and 2022—it was nowhere near enough to meet supercharged demand. We estimate that our housing stock must expand by at least 270,000 units per year by 2025 just to accommodate the growth in households, let alone address the housing affordability crisis in many Canadian cities. Needless to say, homebuilding needs to ramp up considerably from this point on. It’s unclear, though, whether the construction industry has the capacity to do so in the face of significant labour shortages.

Then we’re provided with this rather telling chart:

Despite all of this, RBC’s outlook in the short-term is still bearish, citing this chart in affordability:

From the report:

We expect home prices to continue declining in the coming months as a result. The national RPS HPI is likely to fall another 8% by the third quarter from fourth quarter levels—with markets in B.C. and Ontario still bearing the biggest downside risk. Our peak-to-trough price forecasts range from -19% in Ontario and -16% in B.C. to -6% in Alberta and -5% in Newfoundland and Labrador.

It’s hard to look at that chart and provide any bullish outlook, but let me try…

Not everybody in Canada owns.  Not everybody in Canada is going to own.

Ownership costs as a percentage of household income looks at all households, even those where people aren’t going to buy.

I expect the rate of home ownership in this country to continue to decline, and as a result, a chart like the one above will see an increase.

–

Up next, Desjardins’ Economic Viewpoint, which is titled, “It All Comes Down To Location, Location, Location.”

Here’s the link: Desjardins Economic Viewpoint

Unlike the RBC report which focused on the whole country, this one is focused on the province.

Here’s their first thoughts:

In recent months, the pace of the housing market correction has slowed considerably. Indeed, we expect sales to find a bottom early in the second half of 2023 and home prices to
begin rising shortly thereafter.  Meanwhile housing starts, which have fallen recently from near‑historic highs, should bottom out in the early part of 2024 before gradually climbing higher.  This change in fortune will likely be the result of interest rate cuts following a prolonged pause by the Bank of Canada.  A persistently tight labour market, still elevated household savings and high levels of immigration will also play a role in supporting housing demand in Canada.

Interesting viewpoint.

“We expect sales to find a bottom early in the second half of 2023 and home prices to begin rising shortly thereafter.”

My first reaction was to disagree and say, “What do they mean sales are going to find a bottom in the early second half?  Sales have rebounded!”

But the GTA saw only 3,100 sales in January which was the second-lowest in any month of January, and only 4,783 sales in February, which was also the second-lowest in any month of February.

So they’re right.

About sales, at least.

They note “…home prices to begin rising shortly thereafter.”

I would note that home prices have risen already, and not just in Toronto but rather all regions in the GTA, including Durham, York, Halton, and Peel.  Don’t forget, GTA sales make up an overwhelming majority of Provincial sales.

Their forecast for both sales and prices through 2023 and into 2024 are noted here:

Again, I remain confused.  They noted they: “We expect sales to find a bottom early in the second half of 2023 and home prices to begin rising shortly thereafter,” but this graph seems to show prices moving up in 2024.

As for their forecast on interest rates, Desjardins is echoing most economists when they predicted that rates would remain at current levels through the end of the year before dramatically declining in 2024:

Just like the report from RBC, the folks at Desjardins spent a lot of time talking about immigration and housing.

Here’s a look at housing starts in Ontario compared to the number of starts needed to offset immigration and avoid price increases:

Very interesting chart!

And very in line with what so many economists out there are saying.

Desjardins had previously written a feature on immigration and housing called,  “The Ins And Outs Of Immigration And Canada’s Housing Market”

Link HERE.

From the report:

Naturally, an increase in immigration will spur sales activity. If these newcomers to Canada continue the recent trend of moving to Ontario and British Columbia, affordability there and nationally will erode further.  However, if they move to places that have done a better job historically of integrating immigrants, such as the Prairie provinces, this will provide a substantive offset to the impact of higher immigration on home prices.

Increasing the housing supply beyond the typical demand response would also take pressure off prices but requires extraordinary policy intervention and resolve.  Indeed, we estimate that housing starts would have to increase immediately by almost 50% nationally relative to our baseline scenario and stay there through 2024 to offset the price gains from the increase in federal immigration.  This is equivalent to about 100,000 more housing starts on average annually in 2023 and 2024 relative to our baseline, and would lead to the highest level of housing starts in Canadian history.

That’s not encouraging.

“Housing starts would need to increase immediately by almost 50% nationally relative to our baseline scenario and stay there through 2024 to offset the price gains from the increase in federal immigration.”

Topic for another day, perhaps, but that’s just not going to happen.

I find it very interesting that both RBC and Desjardins dedicated a part of their reports to immigration and housing, but I also think this is only the beginning of the discussion.  These immigration numbers are real.  It’s happening.  So if the building of houses and condos doesn’t skyrocket, then there’s a dearth of supply, and prices increase.

Facts.

This is the number one reason why I question anybody’s bearish outlook in the medium-term, let alone the long-term.

But in the short-term?  I suppose anything can happen.

I remain bullish here in the 416 and I think that some of the forecasts noted above are ignoring what’s happening in the 416 today.

The idea that “activity will hit bottom this spring” seems to be accurate but with respect to price, these forecasts are a little behind.  I don’t think prices will start to increase by the second-half of 2023 because the increase has already started.

All in all, I expected more bearish predictions from these economists since economists are often bearish even in a hot bull market.

Take a look at the title from last month’s Economic Viewpoint by Desjardins:

“The Housing Market Rout May Not Be As Bad As We Once Feared”

I guess that’s a big of a neg, right?

“I love those earrings!  My mother has the same ones…”

I’m going to flag this theme and come back to it in one month’s time.  I expect the March TRREB stats to be very bullish and while these economists reports are typically national or provincial, it’ll be interesting to see how the opinions look by mid-April…