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Challenges of the Canadian Real Estate Market in Late-2023

The last few years have been a roller coaster for Realtors® and other real estate professionals. But you better buckle up because more drops and climbs are coming! 

We predict that the is heading towards a period of significant disruption and transformation in 2023. As the nation grapples with sharp and unexpected interest rate increases and inflation levels unseen since the 1980s, a cloud of uncertainty looms over the entire real estate sector​​. This state of affairs presents both challenges and opportunities for industry players who can navigate the evolving landscape with agility and strategic foresight.

Rising Costs and Limited Capital

One key challenge the industry faces is the rising hurdle of costs and limited capital availability. Survey data indicates that a considerable portion of industry participants anticipate a reduction in various types of debt and equity capital compared to 2022​​. We expect this financial tightening to trigger a phase of price discovery marked by potential discord between sellers and buyers over pricing expectations and asset valuations. 

As borrowing requirements tighten and financing costs rise, the competition between buyers for deals could decrease. This anticipated scenario stems from the difficult task of raising capital and propelling projects forward under the projected circumstances of the market. As such, many players may opt to observe from the sidelines until a clearer picture of the market’s direction emerges​.

Technological Development

Every day, it seems like another story about how AI and machine learning are completely revolutionizing how businesses do their work, and that’s certainly the case in real estate.

There is no argument that technological change and digital disruption are accelerating, introducing new business models and innovations that could reshape the industry. As a result, companies and individuals able to adapt, tap into the benefits of digitization, and leverage new technologies such as Proptech – property technologies commonly used in the real estate industry – are likely to thrive in this fast-evolving environment.

ESG Matters

Environmental, social, and governance (ESG) matters are also gaining significant traction within the industry. In a time when financing is less available and more expensive, companies with robust ESG credentials stand to gain an edge in attracting institutional investment and tapping into new capital sources. We expect this increasing focus on sustainability to be a critical trend in the Canadian real estate market in 2023​​. Companies that take a proactive approach to ESG compliance and implement sustainable practices across their operations will be better positioned to attract investors and navigate the financial headwinds.

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How Will the Market Look in Late 2023 and Beyond? 

The broader economic forecast for 2023 indicates a technical recession is on the way, but many economists expect that the rest of the year’s performance will mitigate this downturn. Even though capital market volumes may dip, experts anticipate them to rebound by spring, and the continued growth of the digital economy will benefit Canada​​. The growth of the e-commerce, data storage, and remote work sectors will help to support the overall market as they drive demand for warehouse, logistics, and office spaces that cater to these digital needs.

What Will Housing Prices Look Like in Late-2023 and Beyond?

Despite the decline in housing prices in 2022, this trend reversed in 2023, resulting in the record-high sales prices observed in most markets in Canada today. Several factors contributed to this significant price rebound.

First, the strong demand for housing has played a crucial role. As the economy improved and employment rates increased, many individuals and families became more inclined to purchase new homes or invest in property. This surge in demand has placed upward pressure on housing prices.

Second, a limited supply of available homes has intensified market competitiveness. With a slow rate of new construction and fewer houses listed for sale, buyers have faced a scarcity of options, leading to bidding wars that pushed prices even higher. This limited inventory has been further exacerbated by an increasing preference for more spacious homes, driven by the ongoing shift towards remote work and the desire for more comfortable living environments.

Given this combination of strong demand and limited inventory, it is no surprise that housing prices have reached record highs in 2023. Though many experts predict that housing prices could drop in the latter part of 2023, they also foresee housing prices reaching new record highs in 2024. The challenge remains to address the growing affordability concerns and provide more accessible and sustainable housing options for prospective buyers in the market.

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Bringing it Home

These anticipated developments indicate a complex and volatile landscape for the Canadian real estate market in 2023. However, with patience, agility, and bold actions, real estate agents, investors, and other professionals can navigate these challenges and capitalize on the opportunities that emerge during this period of change. Industry players that invest in technology, prioritize ESG matters, and demonstrate adaptability will be well-positioned to succeed in a market often characterized by volatility and unpredictability. 

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