The national housing market has experienced quite a bit of turbulence over the past year; despite initial forecasts that sales would plunge due to the pandemic, the demand for homes for sale has been hotter than ever, turning typically quieter towns and cities into sellers’ markets, and ramping up home prices. Now that vaccines are rolling out and a potential end is in sight for the pandemic, how will this impact the real estate market in Canada’s largest centres moving forward?
The Canada Mortgage and Housing Corporation (CMHC) has recently released their 2021 Housing Market Outlook, forecasting a recovery path for the economy and as an extension, housing markets, across the country. Let’s take a look at what major trends the national housing agency expects over the coming year from both a national perspective as well as in the Greater Toronto, Vancouver, and Calgary markets.
The National Housing Market Could Look “Normal” By 2023
In the first half of 2020, home sales and price growth had faced a sharp decline from the last quarter of 2019, due to the initial impact of the pandemic. But, while new lockdown restrictions caused a temporary freeze in the market – buyers and sellers were hesitant to move forward with deals amid a global health crisis – they also limited overall household spending, leading the average household savings rate to reach historic levels in 2020.
Having more cash on hand, combined with lower mortgage rates, encouraged more buyers to take the plunge in the market. This led to a classic supply-and-demand crunch; as sales began to exceed the number of new listings in markets across the country, record price growth became rampant, even in markets known for their comparable affordability.
“COVID-19 has had unprecedented impacts on Canada’s urban centres. While some sectors of the economy have struggled to adapt to pandemic conditions, housing activity has been strong and somewhat disconnected from overall economic and employment conditions in many centres,” said Bob Dugan, CMHC’s chief economist. “Economic conditions are expected to return to pre-pandemic levels by the end of 2023, if broad immunity to COVID-19 takes hold by the end of 2021. This includes the pace of home sales and prices, which we expect to see moderate from 2020 highs over the same period. However, significant risks remain with respect to the path, timing, and sustainability of the recovery.”
Demand for housing has also been driven by record-low mortgage rates, as the Bank of Canada has kept interest rates low to support the economy. The CMHC expects this to be wound back as the economy recovers, which will increase the cost of borrowing over time, though rates will remain historically low over the next two years.
Greater Toronto Area Market Will Continue to Sizzle
Return of immigration will boost sales: While the most recent numbers for the Toronto market reveal buyer demand is starting to slow – sales dropped 12.7% between March and April 2021 – the return of immigration post-pandemic will reignite activity.
“The heavy pace of activity on the resale market, both in sales and price growth, will ease by 2022. When the pandemic unwinds, the return of migrant inflows and employment recovery should ensure steady rental and homeownership demand,” states Dana Senagama, the senior specialist in the GTA.
Job growth will recover: Employment levels are also anticipated to recover, which will further support home buying; while unemployment remains higher in the GTA than it did pre-pandemic, there is still an abundance of office-based jobs utilizing work-from-home practices. Job losses throughout the pandemic have been focused on lower-paying-service-producing industries and among younger individuals. As a result, the job losses had a greater negative impact on the rental demand as opposed to homeownership demand.
More new homes to be built in the suburbs: The CMCH expects construction activity to increase in 2022; there has been particularly high demand for ground-oriented homes (such as detached houses, semis, and townhouses) as buyers desire more living space. This will lead to a boom in building, especially in suburban 905 areas, while building in the 416 will continue at a steady pace. As well, builders will focus once again on new rental construction; due to the drop of demand, many planned purpose-rental projects had been put on hold during the pandemic.
Rental demand is on the road to recovery: In contrast to the strong growth in the real estate market, demand for rentals declined during the pandemic, due to drop in employment and other negative impacts on less affluent households, as well as the drop in immigration and student population. As well, the growing trend of households moving further away from expensive city centers such as Toronto and Vancouver, to less expensive suburb areas and neighboring census metropolitan areas (CMAs) contributed to a drop in rental demand in city centers. The CMHC expects this to turn around in the short term if broad immunity is indeed achieved by the end of 2021.
Vancouver To See Buying Boost as Borders Reopen
The re-opening of Canada’s borders will be particularly felt in the Vancouver housing market, which has long struggled with a supply and demand imbalance. The rapid price growth due to demand will stick around over the long term, according to the CMHC.
“Vancouver’s housing market will adjust to reopening borders and development in fundamentals over the next three years. Buyers will face higher prices and see their budgets decline, while a flow of newcomers will place pressure on the rental market. In essence, the market will face the same sorts of affordability and housing shortage challenges that preexisted the shock of COVID-19,” states Braden Batch, the senior analyst in Vancouver.
Similarly to the GTA, demand for ownership housing grew during the pandemic while the rental market floundered, as there were fewer migrants in the region, and job losses were concentrated for younger and lower-income workers, the typical demographic who rents. As well, the record-low mortgage rates that have been available throughout the pandemic motivated a larger portion of first-time buyers to get into the market, rather than rent. Both segments will see strong growth over the next couple of years as the cost of borrowing will remain low, and the need for rentals returns to the west coast city.
Calgary Jobs Market to Improve as Migration Returns
Overall, the CMHC expects real estate growth to recover alongside the job market in Calgary, which was particularly hard hit in Alberta’s largest city.
“Economic recovery, a stabilizing labour market, and low-interest rates will support moderate growth in resales and new home construction in 2021, before rising interest rates slow housing activity in 2022 and 2023,” states Michael Mak the senior economist in Calgary.
Migration will return to the province: Calgary was particularly hard hit during the pandemic lockdowns, as so much of its economy is dependent on the energy sector. In the first quarter of 2020, as oil prices dropped, job losses mounted as firms reduced production, folded, or merged to lower costs. The labour market recovered somewhat in the second quarter as lockdown restrictions were eased and volatility in the credit and oil markets was reduced. However, unemployment remains relatively high in the Calgary CMA compared to pre-pandemic levels, especially in the service sector.
As well, the province of Alberta is economically driven by migration, which has a direct correlation with employment growth; the initial COVID-19 restrictions last spring resulted in the first quarter of negative migration numbers since 1994. The CMHC forecasts that once employment begins to stabilize with the opening of the economy, migration will recover into positive territory in late 2021 – 2022.
Calgary construction will focus on houses over condos: Construction activity throughout 2020 was lower, due to the economic uncertainty and high levels of existing unsold inventories. Due to low inflation-adjusted mortgage rates, there was a demand for more expensive single-detached housing over 2020, which is expected to continue into the near future. Looking forward to late 2022-2023, the effects of rising interest rates and elevated levels of exciting inventory will slow down new housing starts, particularly in the condominium segment.