Canadian home prices could climb 14 per cent in pandemic’s second year as low rates stoke demand, CMHC says

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Canada’s national housing agency predicts home prices could rise as much as 14 per cent during the second year of the pandemic, as low interest rates continue to benefit high-wage earners and stoke demand across the country.

Over the course of the health crisis, home prices have jumped more than 30 per cent, with the suburbs, smaller cities and rural areas leading the way.

Canada Mortgage and Housing Corp. said the average selling price of a home could increase to $649,400 in 2021, from $567,699 last year, and that property resales could climb as much as 9 per cent to 602,300 units over the same period.

The prediction is slightly lower than the real estate industry’s own forecast for double-digit price and resale increases, but bullish compared with the previous year, when CMHC shocked the market with a dire outlook for home prices to plummet.

In its outlook, CMHC repeated that the virus has exacerbated inequities between wealthy, highly paid workers, who are often homeowners, and low-wage earners, who are predominantly renters. A larger share of well-paid workers kept their jobs and were able to save more money, and they were also able to take advantage of the low borrowing costs. The pandemic restrictions halted most activity in industries such as entertainment and travel that hit lower-wage earners harder.

“Low mortgage rates, high savings rates and persistent, uneven impacts of the pandemic and low immigration are forecast to continue to support sales of more expensive housing types while limiting rental demand,” CMHC said in its spring Housing Market Outlook.

Both CMHC and the Canadian Real Estate Association see activity slowing next year, as mortgage rates increase and higher property prices make it harder to afford a home. CMHC’s forecast, which goes up to 2023, sees resales falling 9 per cent next year before rebounding slightly the following year.

The outlook shows a steady rise in home values in the best- and worst-case scenarios. At the low end of its forecast, CMHC sees the average price up 11 per cent to $628,400 this year and then increasing by 3.7 per cent in 2022 and 2.7 per cent, the following year. At the upper end, CMHC predicts home price acceleration slowing from 14 per cent this year, to 5 per cent in 2022 and then 4 per cent in 2023.

“The pace of sales is expected to moderate from recent highs, reflecting the impact of increasing mortgage rates and high price levels on existing-home markets,” the agency said.

CMHC cautioned that its forecast was quite narrow and “highly dependent” on the country reaching “broad immunity” to COVID-19 by the end of the year. Other factors influencing the outlook included the savings rate remaining above prepandemic levels and mortgage rates gradually increasing.

The agency said there were many unknowns, including the trajectory of the pandemic, the rate of inflation, the pace of new property listings and the future of remote work.

“If mortgage rates were to increase more than expected, this could really have an impact on housing demand, which could decrease more quickly than what we are currently forecasting,” CMHC chief economist Bob Dugan said on a conference call.

He cited remote work as a major factor influencing housing demand. Much of the pandemic homebuying was driven by residents looking for larger properties in smaller cities and markets with cheaper housing.

“This is a big question and one that is very difficult to answer, quite frankly. Will employers want their staff back in the office once the pandemic is over?” Mr. Dugan said. “Will there be a reversal of the urban exodus?”

The home price index, which corrects for volatility, is up more than 40 per cent in less populated Ontario regions such as Woodstock, Ingersoll, Prince Edward County, Southern Georgian Bay and Bancroft. The index is 30-per-cent higher in places such as Chilliwack, B.C., and Moncton.

The massive price increase is making it harder for homebuyers to afford homes across the country, not just the major urban centres. “This can undermine the trend toward moving to these smaller communities and maybe even reverse it,” said Mr. Dugan.

CREA’s forecast is for the average selling price to increase by 17 per cent to $665,000 and resales to rise by 27 per cent to 702,000 units.

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