This is a summary from the reports released by Goldman Sachs and PWC for their 2023 outlook on the macro economics and Canadian real estate.
Let's look at the macro economics first. A few takeaways:
The US should narrowly avoid recession. GS is forecasting another 125 bps rate hike, to a peak 5%-5.25% overnight rate. They don't expect rate cuts in 2023. Hopefully, similar story goes with Canada.
Europe and UK will probably be in recession
Caution on China's reopening, slow growth in first half, but should see sharp growth in second half of 2023
Now onto the Canadian Real Estate market.
2 quotes from the report stand out:
“Patience during this time of uncertainty will be a real virtue for 2023.”
“The short-term risks are real, and I’m not making light of any of them. But if you have the long view, I don’t think it’s time to panic.”
In other words, don't panic and real estate is about the long term view.
The challenges that the market will be facing:
Interest rates and costs of capital as the top economic issue for real estate in 2023
Qualified labour availability - especially in construction
Housing affordability: it's a growing challenge with insufficient supply
Condominiums: it is a growing area in Canadian housing market. But, as with other areas of the housing market, higher interest rates, rising construction costs, and labor shortages are creating challenges for condo builders. Hence we are seeing developers delay or cancel projects. It's estimated around 10,000 units are cancelled in 2022. Such slow down is a major reason why affordability remains a big challenge.
Single Family Housing: With desire for more space combined with limited supply, price for single family rose quickly. But the rising interest rate caused a faster decline in price. But desire for bigger space still exists, so we should see evolving demand for townhomes, duplexes and other forms of low-rise housing.
Markets to watch:
Toronto
Toronto will remain top market in 2023. “Toronto is going to get into a boom based on strong fundamentals,” said one interviewee who expressed optimism about the region’s prospects despite some uncertainty in the short term.
We should see less housing starts in 2023 due to less pre-construction sales in 2022.
City of Toronto also plans to raise development charge by 46% by 2024. Inclusionary zoning is also a concern for developers.
Demand is strong for high-quality downtown offices.
Short-term housing price remain uncertain before trending up in 2024.
Calgary
The city has a strong outlook for residential activity, with its economic recovery, job growth, relative affordability, and rising recognition as a desirable place to live, making it attractive for many looking ahead to 2023.
However, Calgary office market will remain challenged with too much supply and little demand. With rising energy price, Calgary further con-solidified the energy sector.
Overall, I remain bullish on Toronto as the fundamentals are strong with high demand and insufficient supply. Short term might be painful, but the long term future is bright.
For full reports:
Comments