What to Expect from the Canadian Housing Market in 2021

After a turbulent year for most industries, the Canadian housing market is anticipated to be just as unpredictable in the coming year despite the surprising growth seen throughout 2020. There are mixed views on the future of Canadian real estate due to the declining numbers of renters and immigrants.

The Financial Post reported that numbers of renters “have recently declined by 10 percent to 15 percent in major cities making home ownership less attractive while immigration was down 41 percent year-on-year in the first seven months of 2020.”

The Canada Mortgage Housing Corporation (CMHC) says “there is a grim picture of a housing bubble that keeps growing”, despite the fact that sales activities have risen 32.1% year-over-year. In the middle of the year, CMHC announced concerns about a major housing crash which was also backed by the Royal Bank of Canada (RBC).

RBC has reported that ideally “real estate prices will rise by 0.6% in the next 12 months. The compound annual growth in this scenario should be 4.5% for the next five years.” With minimal growth anticipated in the future, the best-case scenario would be for “housing prices to grow by 6.1% in the next 12 months with a compound annual growth rate of 11.1%”. The bank predicts the worst-case scenario would be “an almost 30% decline” in real estate prices over the next year with a “2.9% compound annual growth rate.”

After the Canadian government implemented support programs such as the Canada Emergency Response Benefit (CERB), the overall housing affordability improved “however, the bank noted that rising prices and falling incomes offset by government stimulus could backfire.”

RBC also stated that as Canada transitioned from CERB to CRB, there was a 3.1% decline in aggregated income levels as support became available to a smaller percentage of the population, meaning that “Canada’s median household would have to spend almost half of its income to carry ownership costs.”

With less financial aid available in 2021 as the economy tries to recover from losses during the pandemic, Canadians could see a surge in available housing if homeowners begin selling their properties in order to avoid defaulting their mortgage loans.

In November unemployment rates remained at 8.5%, which means many may be forced to sell their homes based on mortgage deferral expiry. This concern could create an excess of housing supply in the market which could also cause real estate prices to drop significantly.

An increase in supply has yet to occur but analysts predict “there’s no saying it won’t happen next year” as there have been fewer people than normal selling their homes over 2020. The National Bank of Canada said it sees “house prices coming down 5.2% across the country.” Low supply causes prices to rise even with stability in market demand, which is what most are hoping for in the coming months.

Interest rates have been the saving grace of the housing market; with rates at all-time lows it costs much less to borrow which has increased the demand for housing as mortgages become more affordable. “Most experts see rates staying low until at least 2023” so there is a chance for the Canadian housing market to maintain growth in the future and stabilize the post-pandemic economy.

There are some conflicting views about if Canadian real estate will be able to weather the pandemic storm, but there are hopes that the country can blow past a market crash and secure the capital goals of each household.

By Surina Nath