Market in Depth

Canada Residential Real Estate Market Analysis 2023

Lalaine C. Delmendo | February 12, 2023

Canada's housing market is now losing steam, as rising interest rates, a decline in purchasing power due to high inflation, and heightened economic uncertainty are pushing potential homebuyers to the sidelines.

During 2022, house prices in Canada's eleven major cities rose by a modest 2.26%, a sharp deceleration from the prior year's 15.47% growth, according to figures from Teranet – National Bank of Canada. When adjusted for inflation, house prices actually dropped 3.82% last year.

“The housing market story of 2022 was about high inflation and rising interest rates. The 2023 market will depend on the timing and extent those factors move back in the other direction,” said CREA's senior economist Shaun Cathcart.

Ten of Canada's eleven major cities saw a sharp slowdown in house price growth last year. Despite this, Calgary recorded the biggest house price increase during 2022 at 14.34%, followed by Edmonton (7.22%), Quebec (6.17%), Halifax (5.82%), and Montreal (5.06%). Meager house price growth was seen in Victoria (1.86%), Vancouver (0.86%), Winnipeg (0.85%), Toronto (0.58%), and Ottawa (0.56%). Only Hamilton registered a house price fall of 1.3%.

Figures from the Canadian Real Estate Association (CREA) is more dismal, with the actual national average sales price falling by 12% (-17% inflation-adjusted) in December 2022 as compared to a year earlier.

By property type:
  • One-storey single family home prices fell on average by 9.18% y-o-y in December 2022 (-14.58% inflation-adjusted).
  • Two-storey single family home prices dropped 8.79% y-o-y (-14.21% inflation-adjusted).
  • Townhouse prices were down by a more modest 4.22%, on average, over the same period (-9.91% inflation-adjusted).
  • Apartment prices were more or less steady during 2022 but fell by 5.85% when adjusted for inflation.

The national average home price stood at CA$703,875 (US$527,627) in 2022, up by a modest 2.4%  from a year earlier, according to CREA. British Columbia and Ontario had the most expensive housing markets in the country, with average prices of CA$996,694 (US$747,235) and CA$931,953 (US$698,697), respectively.

Both demand and supply are now falling. During 2022, the total number of residential property sales transactions plummeted by 25.2% y-o-y to 498,269 units from a record-high of 666,399 units in 2021, in contrast to annual increases of 20.5% in 2021 and 12.6% in 2020, according to figures from CREA.

Canada house prices
Likewise, the total number of dwelling starts fell modestly by 3.4% y-o-y to 261,849 units in 2022, in sharp contrast to a huge 24.5% growth in 2021, according to CMHC.

The Canadian economy grew by a modest 3.6% during 2022, following an expansion of 4.5% in 2021 and a contraction of 5.2% in 2020, according to the Bank of Canada. However economic outlook is now bleak, as higher borrowing costs adversely affect consumer spending and as export growth moderates amidst deteriorating global economic condition. The central bank expects Canada's economy to grow by a meager 1% this year.

Analysis of Canada Residential Property Market »

Rental Yields

Rental returns in Toronto are moderate

Rental returns on apartments in Montreal tend to outpace those in Toronto.  We´ve found in recent years that even on a largish 120 sq. m. apartment in Montreal, you are likely to earn a gross rental return over of 4.5%. If you own a small apartment of 60 sq. m. in Montreal and rent it out, you are likely to make a return of around 6%. In this low-return era, in a low-risk country such as Canada, that is a really acceptable yield. However unfortunately this year we don´t have yields data for Montreal, so in saying this we are relying on an extrapolation of previous years´ figures.

In Toronto, gross rental yields are lower, at between 3.9% to 5.5%, sometimes even lower. Taking account of the fact that we give gross figures - a guess might be that net yields would be 2% lower.

We continue to find it hard to collect yields figures for Vancouver.

Transactions costs in Canada are usually reasonable. The Canadian property market is cooling.

Read Rental Yields »

Taxes and Costs

Taxes are generally high

Rental Income: Gross rental income is subject to a fixed 25% tax, withheld by the tenant.

However, nonresidents can elect to pay under the section 216 of the Income Tax Act, wherein they will be liable to pay tax on their net income at progressive federal rates. Nonresidents electing under section 216 are also liable to pay 48% surtax.

Capital Gains: Only 50% of the capital gains are liable to tax. Capital gains are computed by deducting the costs incurred in selling and purchasing the property, capital expenditures, and such costs as additions and improvements in the property.

Inheritance: There is no inheritance or estate tax in Canada.

Residents: Canadian residents are subject to Canadian income tax on their worldwide income. Income is taxed at the federal level and at the provincial level.

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Buying Guide

Transaction costs are usually low

Total costs and taxes for buying properties amount to around 4.7% to 11% of the value of the property. Transfer Tax differs in each province, ranging from 0.5% to 2%. Typically, real estate agent's commission is 7% on the first CAD100,000(US$88,495) of the sale price and 3% on the remainder, plus 6% Goods and Services Tax (GST). Total roundtrip costs are higher for new and renovated houses because of the additional 6% GST.

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Landlord and Tenant

Tenant protection laws are strong

Canadian tenancy institutions are pro-tenant.

Rent: The initial rent can be freely negotiated in all provinces, except in some provinces like Quebec, where initially negotiated rents can be appealed if they are higher than a rent charged by the same landlord for the same apartment within the previous 12 months.

Tenant Security: The contract cannot be terminated by the landlord within the duration of the fixed-term lease (usually one year), except for cause (e.g., tenant's non-payment of rent, tenant conducting illegal activity, and so on).

Subleasing needs a written permission from the landlord but this permission may not be unreasonably withheld. However, the landlord can insist on screening the prospective new tenants and may reject them on the basis of financial risk.

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Bleak economic outlook for 2023

The Canadian economy grew by a modest 3.6% during 2022, following an expansion of 4.5% in 2021 and a contraction of 5.2% in 2020, according to the Bank of Canada.

However economic outlook is now bleak, as higher borrowing costs adversely affect consumer spending and as export growth moderates amidst deteriorating global economic condition. The central bank expects Canada’s economy to grow by a meager 1% this year.

Canada gdp inflation
“There is growing evidence that restrictive monetary policy is slowing activity, especially household spending. Consumption growth has moderated from the first half of 2022 and housing market activity has declined substantially,” said the central bank.

“As the effects of interest rate increases continue to work through the economy, spending on consumer services and business investment are expected to slow. Meanwhile, weaker foreign demand will likely weigh on exports.”

To buoy economic activity, the government recently announced CA$11.3 billion (US$8.5 billion) in new spending in the next two years.

The federal government posted a budget deficit of about CA$3.6 billion (US$2.7 billion) in the first eight months of fiscal year 2022-23, sharply down from the shortfall of CA$73.7 billion (US$55.2 billion) during the same period last year.

The general government gross debt was estimated to have fallen to about 102.2% of GDP in 2022, down from 112.9% in 2021 and 117.8% in 2020, based on IMF figures. However it remains far above the average gross debt of about 86% of GDP in 2009-19.

Canada unemployment
The Canadian dollar (CAD) depreciated against the US dollar by about 5.2% in the past two years, to reach an average monthly exchange rate of CAD 1.3422 = USD 1 in January 2023.

The country’s annual inflation rate eased to 6.3% in December 2022, down from 6.8% in the previous month and from a four-decade high of 8.1% recorded in June 2022, according to Statistics Canada. Inflation averaged just 1.8% from 2011 to 2021.

In January 2023, nationwide unemployment stood at 5%, down from 6.5% a year ago and 9.2% two years earlier, according to figures from Statistics Canada. The jobless rate reached a record-high of 14.1% in May 2020, amidst the Covid-19 pandemic.
There were about 1,046,000 unemployed in January 2023, down by 292,000 people as compared to the same month last year.