Since the start of the pandemic in 2020, the real estate market has been undergoing major changes. After overheating, overbidding and low interest rates, the year 2022 was marked by several significant and consecutive increases in interest rates, properties at high prices and ultimately, a decline in real estate transactions in the last half of the year.
Is Quebec heading towards a balanced real estate market for 2023? Will the situation be the same in all regions of the province? What will be the impact of rising interest rates on households?
Here is an overview of the real estate market in Quebec in 2022 and what the year 2023 has in store for us.
- The median property price hit a new record in 2022, at $413,000 for a single-family home (up 13% compared to 2021). However, it should decrease by 5% in 2023 according to forecasts.
- The number of property sales decreased by 20% in 2022, after reaching highs in 2020 and 2021.
- After several consecutive increases to respond to inflation, the policy interest rate rose to 4.25% in December 2022, which consequently increases mortgage rates.
- Although the number of transactions decreased in 2022 and the overbidding phenomenon is tending to subside, the market remains favourable to sellers.
- The year 2023 announces different changes depending on the region. Some regions, such as Greater Montreal, are feeling the effects of the increase in prices more and will take longer to return to balance.
Highlights of the real estate market in 2022
The year 2022 is characterized by new record median property prices and rising mortgage rates which have slowed real estate sales. The Professional Association of Quebec Real Estate Brokers (QPAREB) presented its report for the year at its Fenêtre sur le marché immobilier conference last December, for which we present the main points.
Record median property price
Since the start of the pandemic, the median selling price of properties has increased dramatically. In 2022, property prices reached a new record in the province with an average increase of 13% compared to 2021, with the median price rising to $413,000 for a single-family home.
At the beginning of 2022, with the anticipation of rising interest rates and very low variable mortgage rates compared to the fixed rates that had been rising since the end of 2021, many buyers were in a hurry to acquire a property. This caused a large number of overbidding, thus driving up the price of properties.
However, there has been a price correction for the second half of 2022, which coincides with the repeated rise in interest rates. Indeed, the overbidding phenomenon has eased since June, resulting in a decrease in the median price of properties from one month to the next in the second half.
Historical decline in residential real estate transactions
An important difference with the pandemic years is the decrease in real estate sales in 2022. In 2020 and 2021, the number of residential sales had reached an all-time high (over 112,000 in 2020 and over 109,000 in 2021) while 2022 records just over 88,000 sales.
Drastic increase in interest rates
In response to inflation, the Bank of Canada has raised the policy interest rate several times in 2022 from 0.25% before March 2, 2022 to 4.25% on December 7, 2022. These increases have, of course, impacted mortgage interest rates, causing many pre-qualified buyers at the start of 2022 to postpone or cancel their purchase plans or to turn to less expensive properties.
Less competition in the buyer's market finally put a damper on the bidding, leading to a downward correction in property prices for the second half of the year.
A market still in favour of sellers
Although the number of transactions is low and the phenomenon of overbidding tends to dissipate, the market remains favourable to sellers.
There is an increase in active listings for the first time in several years, but the inventory remains very low, leaving the negotiating power in the hands of sellers.
What does the Quebec real estate market have in store for us in 2023?
In its report, the QPAREB also presents its predictions for the real estate market in 2023. The markets of the different regions of Quebec do not all evolve in the same way. However, the market is expected to regain some balance and be more favourable to buyers towards the end of the year.
Different market situations for the regions of the province
The Island of Montreal, Laval and their outlying regions were the most affected by the overheating and the overbidding phenomenon, where property prices reached record highs. The QPAREB estimates that the issues of accessibility to property exceed a critical threshold for these regions, which suggests a more marked slowdown in the market for them. The important rise in rates will potentially bring an additional inventory of properties on the market due to households unable to meet their mortgage obligations when they renew.
The CMAs of Québec, Saguenay and Trois-Rivières are more resilient to the increase in the cost of financing, no doubt in relation to lower median prices. We are also talking about northern and eastern Quebec. The market should return to more balanced conditions for buyers and sellers in 2023 in these regions.
Slowdown in the real estate market in 2023 and a move towards balance
According to the QPAREB, we will be entitled to an increase in inventory, but a massive return of properties to the market is not expected despite the context of inflation and rising mortgage rates. The market is absorbing the shock of these increases well for the moment, the banks having learned from the 2008 crisis and therefore having adopted a proactive approach towards clients at risk during their renewal.
We should observe a slowdown in the residential real estate market again this year, although less significant than in 2022. The QPAREB estimates that a 9% drop in sales compared to 2022 is a realistic scenario. Conditions are expected to remain favourable for sellers, but tend towards balance for several regions towards the end of 2023.
Sutton Quebec Vice-President, Julie Gaucher, shares her tips for buying or selling in 2023
A title that will leave many unsatisfied since to the question that comes up regularly as to whether it is the right time to sell or buy, the answer has always remained the same since 2020 and even well before. Indeed, each situation is unique and several factors must be considered when considering a decision as important as buying or selling a property. This is where the support of a Sutton real estate broker is very important since the latter can analyze the needs, reasons and factors inherent in such a decision and propose appropriate solutions.
No one has a crystal ball to predict the future and besides, who could have predicted consecutive and as large rate hikes deployed in a single year as what we experienced in 2022? It is normal that this situation could not have been predicted since even the decision-makers of the Bank of Canada have to make decisions somewhat "blindly", despite all the tools and indicators at their disposal, the effects of their decisions generally feeling between 4 to 6 months later and sometimes even beyond this period.
The announcement of the December inflation rate (6.3%) gives us some indication (and not a certain indication) of the trend that the key rate will take for the following weeks. Note that the target inflation rate is between 2% and 3%, and we are still well above it.
To better understand the inflation rate and its influence on the policy interest rate, consult Statistics Canada website.