A new report from TD Economics forecasts Canadian home prices will find a floor early this year.
The bank says it's maintaining its long-held view that home prices will fall roughly 20 per cent peak-to-trough, but the steepest declines will happen in Atlantic Canada, Ontario and B.C.
"However, declines in the latter two markets will more than retrace the gains made in 2022, which is not the case for the Atlantic," TD economist Rishi Sondhi wrote in the report, which was released Tuesday.
"We forecast lesser annual average price declines across the Prairies and Newfoundland and Labrador this year, supported by comparatively decent affordability conditions."
Provincial breakdown of TD's housing outlook
According to the Canadian Real Estate Association, national home prices averaged $632,802 (not seasonally adjusted) in November, down 12 per cent year-over-year.
The bottoming in prices coincides with the timing of the Bank of Canada's rate hiking cycle. The central bank is widely expected to raise its benchmark rate by 25 basis points later this month, after the recent stronger-than-expected jobs report tilted expectations in favour of another rate hike. It would bring the bank's key lending rate to 4.25 per cent. Many economists see the central bank pausing on rates afterward to assess the economic impact.
Despite the continued price decline, don't expect buyers to come flocking back, TD says, as higher borrowing rates offset improvements in prices.
The report is calling for home sales to also bottom in early 2023, and remain low through the year.
"To be clear, even if activity does bottom in the next few months, sales levels should remain depressed, thanks to the poorest affordability backdrop since the late 80s/early 90s," Sondhi said.
"Indeed, 2023 is likely to mark the weakest sales year since 2001."
Slight recovery on tap for 2024
In general, TD expects home sales and prices to return to growth in 2024.
The bank says inflation should be contained by then, allowing the Bank of Canada to possibly reduce rates. Additionally, a strengthening economy and population growth should buoy sales demand.
"These factors should manifest in stronger sales activity, though at a pace that will continue to lag pre-pandemic levels for much of the year. Improving housing demand is also likely to stoke some renewed growth in prices. However, a still-constrained affordability backdrop will be a limiting factor," Sondhi said.
The report says if higher borrowing costs and economic weakness lead to an elevated amount of forced selling, price growth could be weaker than expected.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.