The Canada Mortgage and Housing Corp. says the average home price will not revert to pre-pandemic levels in 2023 because declines in prices will taper off soon and bottom out sometime this year.

The federal housing agency is predicting home prices and sales will record year-over-year declines and by the end of the year, leave the country with an average annual price below the 2022 level.

However, the declines won’t blunt much of the market’s heat because CMHC’s chief economist foresees a more significant drop in housing starts this year than was experienced between 2020 and 2022.

Bob Dugan sees some recovery in 2024 and 2025, but expects supply gaps in Canada’s most expensive and supply-constrained housing markets, including Vancouver and Toronto, to worsen.

He says home ownership will be less affordable across Canada in the near-term because of higher mortgage rates and still-elevated price levels.

He adds rental affordability will also likely decline as demand outpaces rental supply.