The short answer… no, not likely!
The Canadian real estate market has continued to show resiliency time and time again during this pandemic. So while there is still a long road ahead of us, especially as we are entering into the second wave the final two months of 2020 will be ending on a high note. With such a strong market this year, the beginning of 2021 will likely being an continued active market with a hopeful balance towards the end of next year.
The Canada Mortgage and Housing Corporation’s (CMHC) Chief Economist Bob Dugan, told reporters at a press conference recently that the agency stands by its previous forecast in May that warned of a decline in Canadian house prices between nine and 18%. “I’m not convinced that we have a sustainable basis for housing demand in the economic disturbance that’s going on related to COVID-19,” Dugan said. “That’s why I say I stand by the forecasts.”
As I shared in the spring and current market reports have shown, we just are not following that forecast. This year alone in Kamloops, prices have increased 6.5% from 2019 and 19.5% from 2018.
Nobody could have predicted the success of the Canadian real estate market in the wake of COVID-19. At the height of the pandemic, March and April 2020 experienced dramatic declines in activity, but transactions quickly resumed across the country as real estate professionals and consumers alike adapted to social distancing measures and embraced technology to continue transacting, despite disruptions to the economy and every facet of daily life.
Last month we at RE/MAX Canada revised our forecast for national average house price in 2020, increasing it to +4.6% from our original expectation of +3.6% at the end of last year.
In terms of declining prices, “the impact was on rent as opposed to home ownership,” said Benjamin Tal, Chief Economist at CIBC World Markets. His optimism in the Canadian housing market was due to continued low interest rates and strong pent-up demand. “Eighty per cent of jobs lost were in the service sector. Many of them were low-income and many of them were renters. So, the impact was on rent as opposed to home ownership,” he noted.
Economists Aligned in Strength of Housing Market
RBC Economics recently reported that a large-scale decline was unlikely. “The pandemic completely disrupted normal seasonal patterns by shifting activity from the spring to summer. With pent-up demand now largely exhausted, we see activity cooling later this fall. This should let some of the steam out of prices though not to the point of causing outright declines on a large scale.”
TD’s Beata Caranci also commented on Canada’s “swoosh” economic recovery and the housing market. The level of unemployment suggests the housing market should not be as active as it is. However, when you look at income levels, it all makes sense. Incomes today aren’t behaving like we’re in a recession, Caranci explained, and incomes are being supported at the same or at higher levels than in previous recessions. So, there’s a complete disconnect between the employment rate and income levels, which is adding fuel to the housing market.
So, if the real estate industry disagrees and economists disagree, just where is the CMHC getting its insight to support such a steep decrease?
Recently the Ontario Real Estate Association surveyed Ontarians, finding a strong majority think housing is an important (60%) or somewhat important (32%) contributor to the provincial economy recovery. They are now pushing on governments to help stimulate the market with incentives like a “Land Transfer Tax Holiday” to help get more homes on the market and address some of the supply issues the province in currently facing.
I do think we may see a “hangover” from the busy market we’re experiencing right now, but overall as we head into 2021, I think a prediction of more balanced conditions across the Canadian housing market is warranted. But an 18% decline in prices is highly unlikely.