In April of 2022, Ottawa home prices had increased by 16% over April of 2021, which was a historical high. The federal government and the Bank of Canada decided to step in with the intention of making homes more affordable and combat inflation. The method they chose was to raise interest. What ensued was the  most rapid interest rate increases in history. 

Did this work in making home ownership more affordable?

Let’s explore…

As interest rates increased, home price increases slowed. From June to August of 2022, home price increases slowed to 3.0%. By the fall of 2022, price increases in Ottawa shifted to a small price decrease. The average Ottawa home prices ended 2021 at $707,821 and by the end of 2022 the average price had declined to $655,839.

So a homeowner who purchased in 2022 saw a net loss in equity of $51,982.
However, when compared to the average sale price at the end of 2020 of $592,000, that homeowner saw an equity increase of $63,730 from 2020 to the end of 2022, a compounded 4.4% increase in value; a healthy return and higher than Ottawa’s average annual historical price increases. As with all things financial, timing is everything!

Unfortunately those who bought in 2022 will need to wait a few years for home values to recover. How long? Most likely not very. 

Different forecasters from both financial institutions and the real estate sector are predicting Ottawa home prices to rise in 2023. Focusing on the supply of homes, a slight increase or decrease in demand could start a new, rapid price increase or a continued, moderate decrease.  Most experts are banking on the first scenario and predicting a 4-6% increase in home prices in Ottawa. Taking the average current price from $655,839 to between $682,072 and $695,189 by the end of 2023.

Let’s explore further…

Have the rapid increases in mortgage rates succeeded in making home ownership more affordable? 

The simple answer is no. While lower home prices might make one conclude that they are more affordable that assumption would be wrong. Our current interest rates have actually taken the dream of home ownership away from more first time buyers than the high prices that preceded it. Prior to the rate increases, more first time buyers were able to qualify for a mortgage sufficient enough to afford a home even at the elevated prices with the lower interest rates. The current minor price decrease in home values does not compensate for the higher qualification level.

With purchasing power being eroded, the stated goal of moderating home prices to help first time buyers was not achieved. Fewer first time buyers now qualify to buy homes at the current average resale price then before the rapid mortgage rate increases.

What other factors are hampering home buying?

The current supply of resale homes in Ottawa is at a similar level as it was in 2019. We currently have roughly 3,000 listings available on the MLS which is not far from the supply we had at this time in 2019 of 2,806. Lower availability leads to more competition which helps to keep prices stable and eventually leads to prices rising. 

Currently, we are finding that when our clients decide to make an offer on a home, invariably other buyers are waiting in the wings, resulting in a multiple offer situation. As of yet, this is not causing price jumps but it is leading to a few “over asking price” sales. One positive note, we are seeing a return to conditional sales as the norm. That can and most likely will change as the spring market heats up. 

What does Ottawa’s supply of available homes look like?

The inventory of available homes for sale on the MLS in greater Ottawa is just under 3,000. Prior to 2019, the inventory would be substantially higher at this time of year. This lack of supply of homes is not the sign of a healthy, balanced market considering more than 17,000 homes a year are bought and sold through the Ottawa MLS. With fewer than normal homes for sale, buyers’ options are more limited.

The third factor that will affect the home market in 2023 is Ottawa’s growing population, through immigration, repatriation and our high birth rate.

After a slight pause, the number of new Canadians coming to Ottawa is growing. They will need a place to live and will compete for the available homes. Those already here and renting or living with family will also enter the market. When this happens, likely midway through 2023, the supply of available homes will be quickly absorbed. Unless thousands of new homes are added to the supply, we could easily get into the same situation in 2019 when house prices rose rapidly.  

What should we expect in 2023?

Will rates come down? There’s no indication that the Bank of Canada is likely to do so.

Will more homes flood the market forcing prices down further? Unless and until home owners see a strong resale market, they will not be motivated to sell. Ottawa has a very stable economy so homeowners do not have to sell.  

Will prices drop substantially? Both a stable demand and the current lack of supply means more competition for fewer homes ensuring price stability or increases.

Is now a good time to buy a house?

That depends on your circumstances but if you are able to buy a home, now might be the best time to take advantage of a slow market and abated average home prices and beat the rush. 

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