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The housing market in many centres across Canada is pretty hot, with the price of housing skyrocketing in many cities. Buying a house is not easy, and many consumers are simply unable to come up with that kind of money.

However, the price of real estate isn’t the only thing that’s keeping buyers from getting into the market. Mortgage rules have become increasingly stringent over the recent past, making it tougher for borrowers to get approved for a mortgage to finance a home purchase.

Will The Housing Market Crash In 2023 In Canada? 

A housing market crash typically happens after unsustainable and rapid growth in home prices. At some point, the inflated growth rate of home prices will plateau, after which the housing market will “crash” as prices inevitably tumble and return to normal levels. A housing market crash usually happens once demand among buyers slows down significantly as housing inventory increases. 

When a housing market crashes, homeowners are at risk of being left with big mortgages that may exceed the market value of their homes. This can lead to severe financial issues, including increased debt, risk of mortgage default, and bankruptcy. 

Signs Of A Housing Bubble: Will The Housing Market Crash In 2023 In Canada? 

So, will the housing market crash in Canada in 2023? In order to forecast what a real estate market will do, it’s important to understand some of the warning signs of a housing bubble and an inevitable crash:

Rapid Increase in Home Prices  

When home prices soar within a relatively short time frame at a much faster pace than wage increases, this could be a red flag. If the average income growth cannot keep up with the rate of price increases, a housing bubble is likely, and a subsequent price correction may be on the horizon.  

More Inventory

As more listings hit the market, there needs to be healthy demand to keep the market balanced. But when housing supply far outweighs demand, sales will slow and listings will sit on the market for longer. Weakening buyer interest is another sign that the housing market may show signs of a potential crash.

Higher Mortgage Interest Rates

Rising mortgage rates make it increasingly difficult for buyers to get into the housing market. If they’re unable to afford a mortgage, they won’t be able to buy a home. Higher mortgage rates discourage buyers, which is a key reason why demand for housing drops.  

Sluggish Economy

The housing market climate is largely determined by the economy. A strong economy typically goes hand in hand with a healthy housing market. But the opposite is also true: an economic downturn generally comes with higher unemployment rates and inflation rates, and lower consumer confidence and purchasing power, all of which play a role in a coming housing crash.

Will The Housing Market Crash In 2023 In Canada? 

Based on these factors, it’s highly possible that Canada may see a housing crash in the near future. Over recent months, Canada has seen soaring home prices and mortgage interest rates and a slow economy. Consumer spending has dropped as more and more Canadians are watching their pennies amidst soaring inflation and cost of living. 

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Is Buying A Housing During A Housing Market Crash A Good Idea?

A housing market crash may be characterized in part by a major slowdown in buyer activity, but that doesn’t mean it’s a bad time to buy a home. In fact, if you’re in a strong financial position, a housing crash may be a lucrative time to make a home purchase. Here are some reasons why:

  • Lower home prices. In this type of housing market, home prices may stagnate or even drop, as mentioned. With fewer buyers looking to buy, there will likely be fewer bidding wars and multiple offer situations. Odds are, an offer made just under the listing price will be accepted, as sellers won’t have as much negotiating power.
  • Lower mortgage rates. During a recession, mortgage rates may decrease as the federal bank tries to stimulate growth in the economy. Right now, Canada is seeing very high mortgage rates, but the federal government expects interest rates in Canada to come down by the middle of 2024. If and when that happens, this will make buying a home more affordable for those with the capital to buy. 
  • Less competition. Fewer consumers will be in a position to afford a home purchase when the economy takes a downturn. This means less competition among buyers, giving them more options to choose from and putting them in the driver’s seat at the negotiating table.

How To You Enter The Canadian Housing Market

Getting into the real estate market when the economy is thriving and consumer spending is healthy is one thing. But buying during times of uncertainty is another. Here are some ways to enter the housing market today: 

Get A Mortgage Through A Broker

Regardless of what the current market looks like, it’s always best to go through the process with a mortgage professional on your side. When you work with a mortgage broker such as Mortgage Maestro, you have the advantage of tapping into all mortgage products and lenders within their partner network. So, instead of visiting your bank and settling for the limited products they have to offer, you can have your broker do all the legwork needed to find out the best and cheapest mortgage product you can qualify for. 

Based on your financial situation and goals, your broker will build a customized mortgage solution best suited for you. 

Rent-To-Own Programs

It can be tough to come up with a sizable down payment to be put toward a home purchase. Conventional mortgages require that you put at least 5% toward the purchase price of a home in the form of a down payment. Based on the $729,044 national average price for a home, for instance, you’d need to come up with a minimum of $36,452. That’s a pretty substantial amount and many first-time buyers don’t have that kind of money.

Rent-to-own programs don’t require a massive down payment in order to get approved. Instead, they allow buyers to live in a home and pay rent. Your rent payments would pay your rent but a portion would be saved to go toward the purchase of the house you’re renting. This is referred to as “rent credit”. 

When you sign this type of contract, you agree to rent the property for a certain time period, after which you may exercise the right to purchase the house at a previously agreed-upon price and your name will be on the title of the home. If not, you may walk away once the contract expires, however, you’ll lose the money that was put towards your rent credit. 

This way, you can get into the market and finally claim ownership of a property in the near future without having to come up with a large sum of money toward a down payment for a conventional mortgage.

Buy A Fixer-Upper

Turn-key homes that have already been upgraded tend to command a higher dollar figure than homes that are in poor condition, for obvious reasons. But even if you bought a home that was move-in ready and needed no work, you wouldn’t have much room to add some value to it yourself.

Instead, consider buying a fixer-upper, which should come with a much cheaper price tag. Not only would you be able to afford the home at a lower price, you’d also be able to quickly add equity to the home by making the upgrades and improvements yourself. By investing a little sweat equity, you can buy what you can afford and add value to it in a short period of time.

Final Thoughts

Getting into the Canadian real estate market these days is certainly a challenge. Housing prices are high and mortgage rules are tight. But that doesn’t mean getting your foot in the door is impossible. There are steps you can take to make homeownership happen for you. Team up with an experienced mortgage broker and real estate agent to see what options are best suited for you.

Housing Market FAQs

Are house prices dropping in Canada?

Home prices have already decreased in many parts of Canada over the past year. Further, home prices are expected to dip by another 10% by early 2024, as per Mortgage Professionals Canada (MPC). 

Should I buy a house now or wait?

That depends on your financial situation. If you’re struggling financially, now may not be the best time to buy a home and add more debt to your pile, especially with mortgage rates as high as they are. But if you have adequate capital to invest, now may be a great time to buy as home prices begin to plateau and even dip over the next few months. 

When will houses become affordable in Canada?

Home price gains in Canada have slowed significantly over recent months. If prices and mortgage rates begin to dip in 2024, buying a home could be more affordable in 2024, though it remains to be seen exactly when or if this will happen. 
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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