After being on hiatus for a couple of quarters both the Canadian Real Estate Association and Canada Mortgage and Housing Corporation are back with their updates and assessments. The federal housing agency remains cautious, but uncertainty has given way to confidence at CREA.
Market heats up as the weather cools
The realtors report that the rebound in the third quarter carried through into Q4 with record setting sales numbers and solid price growth in October and November. CREA is projecting a national sales record for 2020, once the December figures are in. Nearly 544,500 units are expected to change hands – an 11% increase over 2019. The national average sale price is expected to exceed $568,000 – a 13% increase.
Strong demand to persist
The price acceleration is expected to continue through 2021 with the national average climbing another 9% to $620,000. It comes down to the classic economic principle of supply and demand. New listings have been significantly lagging sales. That was the case before the pandemic and it is expected to continue even though CREA sees monthly sales volumes returning to closer to normal through 2021.
According to the realtors, low interest rates will likely support the higher prices. The Bank of Canada has said it will hold its rates down until, likely, 2023, giving buyers some extra headroom on their purchase price. Lately, the central bank has been signalling it might contemplate a further rate cut, if conditions warrant.
CMHC remains watchful
Canada Mortgage and Housing Corporation is maintaining its cautious view for the market. The agency had forecast the possibility of serious price drops as a result of the pandemic. As yet, that has not happened. The agency’s latest Housing Market Assessment remains in the yellow, signalling a moderate, overall level of vulnerability.
Expanding demand, shrinking supply
As with the realtors, CMHC’s main focus is on shrinking inventories and rising prices. The agency points to price increases that are not supported by economic fundamentals such as employment levels, income, inflation and immigration. It says this “overvaluation” is reaching a critical threshold and will be closely monitored.
Market “overheating”, which CMHC uses as a gauge of supply and demand, remains at a low level of vulnerability nationally, despite a near record high sales-to-new listing ratio. This is something of a technicality though. The measure is above the agency’s critical threshold, but it has not been there for two consecutive quarters… yet.
“Price acceleration” remained a low risk largely because increases in spending on homes was the result of a shift in consumer preference to more expensive, ground-oriented units.
“Overbuilding” is also seen as a low vulnerability risk due to growing slack in the rental market, due to a COVID related slowdown in immigration.
The COVID wildcard
The coronavirus pandemic remains the greatest unknown. Conventional wisdom has it that the roll out of vaccines will eradicate – or at least contain – the virus. As jobs return, people get back to work, and immigration resumes the housing market is expected to return to normal as well. Demand though, will likely be skewed by an ongoing desire for bigger spaces to accommodate the new-found preference for working from home.