Ottawa home prices are expected to approach peak levels last seen in 2022 by the end of this year before climbing to new highs by 2026, the Canada Mortgage and Housing Corp. predicts.
The federal agency’s latest housing market outlook is also forecasting local housing starts will bounce back to pre-2023 levels this year as financing costs are expected to ease.
CMHC is projecting the average Ottawa home price will range from $665,000 to $695,000 this year, up from about $655,000 in 2023 and in the vicinity of the average price of $692,000 in 2022.
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“We expect a moderate increase in house prices in 2024, driven by expected declines in mortgage rates that will boost housing demand,” the agency said in the report released Thursday.
“The upward pressure on prices is expected to be limited, as new listings are anticipated to climb when market activity increases.”
CMHC says housing prices are then expected to rise further in 2025 and 2026 due to “continued declines in borrowing costs and ongoing population growth, resulting in higher demand for housing.”
Meanwhile, the agency says housing starts will likely approach levels last seen in 2022, before soaring inflation and rising interest rates dampened construction activity.
CMHC is predicting local builders will start work on between 9,300 and 11,000 housing units this year, up from 9,245 in 2023 but still below the 11,479 starts recorded in 2022.
Starts are projected to dip slightly to a range of 8,800 and 10,800 in 2025 before climbing again the following year.
In particular, townhome construction is expected to boom in 2024 due to rising demand for affordable housing, the agency said, continuing a trend from last year that saw condominium developers shift their focus to townhomes for their cost-effectiveness and faster build times.
In addition, CMHC says single-detached starts are also likely to rise as declining mortgage rates entice more buyers to enter the market.
“Developers are ready to respond to this increased demand by resuming stalled projects and starting new ones,” the agency said.
The agency also pointed to new programs and policies aimed at spurring new multi-residential projects, such as the removal of the HST on construction of new rental apartments.
“Factors such as declining financing costs, easing inflation and policies aimed at reducing development costs will bolster future construction activity,” the report said.
The forecast comes less than two months after the federal government announced it was giving the City of Ottawa $176 million from its Housing Accelerator Fund to speed up the pace of affordable housing construction with capital funding for shovel-ready projects and financial incentives for developments that include affordable units.
The feds said they expect the funding to fast-track more than 4,400 housing units in Ottawa over the next three years and more than 30,000 units over the next decade.
National prices expected to rise
Nationally, CMHC is forecasting home prices could match peak levels seen in early 2022 by next year and reach new highs by 2026.
The agency says despite an increase in rental housing coming on the market in 2023, supply is not forecast to keep up with demand, leading to higher rents and lower vacancy rates in the coming years.
“Unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024,” CMHC chief economist Bob Dugan said in a statement.
“We anticipate by 2025-2026 lower interest rates, continued government support, and policies encouraging greater density in urban centres should make more projects viable.”
The CMHC said affordability in the home ownership market will also be a concern for the next three years, as declining mortgage rates and the country’s strongest population growth since the 1950s will likely spur a rebound in home sales and prices.
Home sales dropped by around one-third from their peak in early 2021 to the end of 2023, while prices fell by nearly 15 per cent over that time, CMHC said.
“During this time, the pool of potential homebuyers grew through robust population growth, increased savings and higher incomes,” the report said.
“As mortgage rates and economic uncertainty decrease in the second half of 2024, we expect buyers to start returning to the market.”
CMHC said the resurgence would also be driven by a shift in demand toward lower-priced homes and markets across Canada.
The agency predicts sales activity from 2025 to 2026 will slightly surpass the past 10-year average but remain below the record levels recorded from 2020 to 2021, due to how expensive housing remains.
CMHC also says housing starts in Canada are expected to decline this year before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction.
A report last week from the agency showed construction began on 137,915 new units last year across Canada’s six largest cities, a level that was roughly in line with those of the past three years due to a surge of new apartments.
On a regional basis, the CMHC forecasts Ontario and B.C. will drive the decline in national housing starts this year, warning developers may struggle to boost even apartment construction amid challenges such as financing costs.
It expects the Prairie provinces to perform well, citing affordable home prices and a stronger economic outlook which will likely attract homebuyers and job seekers, leading to increased construction.
In Quebec, housing starts are expected to grow but remain below post-pandemic levels after a sharp decline in new home construction last year.
The agency said the Atlantic region will likely see less pressure on new home construction than it has since 2022 from unusually strong migration, as starts in certain eastern provinces “will remain historically robust but will realign more closely with weaker population growth.”
– With additional reporting from the Canadian Press
