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New listings will climb through much of 2023 and in 2024 after Canada experienced a decline in supply during the current downturn in housing markets, according to a new forecast from TD Economics.

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New listings fell 19 per cent on a peak-to-trough basis after the housing market began its correction in February last year, and ended 2022 11 per cent below their 10-year average, weighed down by particularly steep declines in B.C. and Quebec, the report found.

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Home sales and prices have also declined since last February, but the report noted a lack of inventory saved home prices from an even steeper drop.

While inventory is expected to pick back up, rising demand should keep markets balanced and underpin positive growth in home prices, particularly in the second half of the year, TD economist Rishi Sondhi wrote, though he noted it is possible that supply growth is stronger than expected.

“There is some risk that supply grows more forcefully than anticipated as homeowners face the headwinds of record high debt servicing costs and economic weakness,” Sondhi said, noting such a scenario could keep prices under pressure.

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Price growth was positive in half of all provinces in December on a three-month moving average basis, marking a turnaround from earlier in the year, the report said.

The forecast said listings will start falling again in the first quarter but resale supply will start to climb afterwards as the market finds its bottom.

It said the increase in listings between the second and fourth quarters of 2023 will be higher than the previous seven per cent projection because listings fell further than expected in December. The report added that listings are then expected to slow to a more modest two per cent growth pace in 2024.

“Ultimately, the notion that the Canadian market will only retrace a portion of pandemic-era price gains, coupled with the challenge of building enough new units to house a robustly growing population, should keep affordability pressures bubbling and support elevated and growing prices over a longer-term horizon,” Sondhi wrote.

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