JOSH BUCHANAN
December 31, 2022
Back in 2015 and 2016, making predictions was pretty exciting because I felt like what was going to happen next was pretty much a sure thing. This year, the market just has an unusual combination of trends happening and it's tough to say what exactly to expect.
Here's what I'm thinking for 2023 for residential real estate in Saskatoon:
Interest Rates
I think that the biggest increases are behind us. In 2022, we saw 7 rate increases which equated to a 4% total increase on the policy interest rate set by The Bank of Canada. For 2023, I can't see there being 7 more increases or a total increase of 4% again, that would be a disaster. However, I do believe that the increases we have already seen take a while to be fully felt. Obviously, they have already had an impact on the market as I explained in post #256 but it takes quite a while before all of the impact is felt. For example: many people will be going to renew their mortgages in 2023 at much higher rates, many people are now struggling to make mortgage payments if they had variable rate mortgages, some are being notified that they've reached their trigger rate if they had variable rates on fixed payments, and the increased borrowing rates may even deter developers from building moving forward.
So, maybe there are one or two more small increases like 1/4 of a percentage point, but I think and hope that 2023 will see The Bank of Canada laying off a bit.
Sales Volume
I think it's a pretty conservative prediction to say that sales numbers will be lower in 2023 than they were in 2021 and 2022. Part of this is because the market finally just slowed down after the crazy pandemic phase but also because interest rates are reducing sales numbers. It appears that Toronto and Vancouver have seen some major declines in sales numbers in recent months but Saskatoon hasn't been impacted as severely. Our sales numbers haven't completely tanked, they've just returned to the normal levels we saw prior to 2020 as explained in post #255.
Price
Borrowing power of buyers has dropped, monthly mortgage payments have increased, and sales numbers have fallen. This is usually a recipe for falling home prices, however, our ratios are still pretty balanced and inventory levels are low relative to sales. I do expect prices to drop in 2023, mainly because of the impact of interest rates on purchasing power and affordability, however, it's the low inventory levels that are going to prevent there from being huge price declines in the future. If we had inventory levels like we did in 2016, this could be a disaster. Because we have low inventory levels, there still aren't going to be many desperate sellers having to cut their asking prices to find buyers like they did from 2016-2018 which led to market price declines of well over 20% for some properties.
Listings
It's tough to say what will happen with new listings in 2023. I could see some people listing because they can no longer afford their mortgages and need to rent, but I could also see some people holding because they have a good mortgage rate and possibly can't port their mortgage or don't want to start a new mortgage at a much higher rate if they can avoid it.
If I have to guess, I will say that there will be more new listings in 2023 than there were in 2022.
Inventory
As of today, there are 879 active listings in Saskatoon. To some, this might sound like a lot of homes available. However, relative to historical numbers this is extremely low, and relative to recent sales numbers, this is also low. Scroll down here to see what inventory levels looked like over the past 5 years.
I expect that inventory levels will stay low in 2023 relative to sales numbers and we won't get too far into a buyer's market range. However, I expect the current trend to continue which means inventory levels in 2023 will be higher than in 2022 throughout the year.
Construction
New housing starts so far for 2022 are similar to what they were for 2021 but I expect new construction starts to slow in 2023 due to the market slowing down, interest rates going up, declines in consumer confidence, and increased uncertainty in the market. This could help prevent having excess inventory even if new listings do rise in 2023.
Affordability
The increase in interest rates has really just increased the cost of housing. While the Home Price Index Benchmark values have dropped a bit in Saskatoon in recent months, the amount of interest you'll pay on a home in the first 5 years alone will greatly outweigh the small amount of price softening we've seen so far.
As mentioned previously, I do expect some price declines in 2023 but not enough to offset the additional cost of homes due to the increased interest rates and their impact on borrowing costs as I explained at the bottom of post #254.
Rental Market
The CMHC is disappointingly slow with releasing their data sometimes and still haven't posted rental vacancy rates from their October analysis. As of their latest post from ..14 months ago.. the vacancy rate for the city's primary rental market was 4.8% which is very low and it has continued to stay low through 2022 in my observation. The rental market is less impacted by increased interest rates and probably even benefits from it. I'm sure a significant portion of people have decided to continue renting instead of buying for the time being as interest rates continue to climb.
With high immigration, interest rates rising, low rental inventory, home sales dropping, and new construction numbers staying flat, I expect the rental market to stay competitive through 2023. It will remain a "landlord's"market"where they will have bargaining power and good rentals will be leased very quickly. Vacancy rates will stay low and rental rates will not be dropping in 2023, in my opinion.
Other Information
The main economic indicators in Saskatchewan are actually quite strong right now which I covered two months ago in post #254.
My other 256 blog posts can be found here.
Here are some useful data sources I reference for the housing market in this post:
https://www03.cmhc-schl.gc.ca/hmip-pimh/en#Profile/1700/3/Saskatoon
https://www.crea.ca/housing-market-stats/mls-home-price-index/hpi-tool/
https://teamfisher.com/blog.html
If you're considering buying a home in the future, come check out a free seminar that I am putting on in partnership with a local Realtor and mortgage broker where we take you step-by-step through the home buying process. Our website is here, the Eventbrite link is here, and more details on the seminar along with information on my other educational content are on my website here.
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If you're into personal financial management, check out my business Instagram account @magnaltus where I'll be posting some of my favourite tips in 2023 for personal money management and budget travel.
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