Housing markets expected to moderate, risks remain: CMHC report

CMHC has released its 2021 Spring Housing Market Outlook report. According to the CMHC report, home sales and price growth will moderate from unsustainable 2020 levels but remain elevated. This is expected as economic growth and employment in Canada recover from losses incurred during the COVID-19 pandemic. Also, as broad immunity to the pandemic takes hold and restrictions are lifted, in Canada and globally. Below are highlights from the report.

National-level overview

  • The pace of sales is expected to moderate from recent highs. Slower sales growth will help moderate the pace of price growth.
  • Rental demand will recover as immigration recovers, but vacancy rates will likely remain elevated relative to recent years. Housing starts will stabilize at levels consistent with household formation by the end of 2023.
  • The precise timing and speed of the economic recovery in major markets is highly uncertain and outlooks remain subject to significant risks. These include:
    • A slower-than-expected vaccine roll-out that could prolong the pandemic
    • Stronger than expected inflationary pressures potentially leading to higher mortgage rates, among other risks.

Key highlights from the major census metropolitan areas (CMA) are available below and further markets are discussed in the full report.

Greater Toronto Area home sales and price growth will remain strong in 2021 before slowing down in 2022

  • Total housing starts will gradually increase due to higher pre-construction sales. This is seen primarily in condominium apartments that have yet to break ground.
  • Resale home sales growth will remain strong in 2021 before slowing down in 2022. The rapid pace of home buying is expected to ease as homebuyers adjust to rising mortgage rates and record price growth.
  • Average price growth will moderate as the pandemic recedes and individuals move back into downtown areas. This will tilt the composition of sales back towards relatively lower priced condominium apartments.
  • Rental demand is expected to recover as borders reopen and higher immigration targets are met.

Montreal market conditions will continue to favour sellers in 2021, resulting in strong price increases

  • The very low inventory of available units on the real estate market will continue to support new home construction in 2021. Construction of single-family homes will increase this year, as the demand for these types of housing has increased since the beginning of the pandemic. Rental construction will be supported by low vacancy rates in several geographic areas.
  • Limited supply on the resale market, combined with reduced affordability, will slow transaction growth in 2021. Centris® sales will stabilize at 2020 levels or see only modest growth this year.
  • With demand remaining strong and supply scarce, market conditions will continue to strongly favour sellers in 2021. The increase in the average price this year is expected to hover around last year’s increase (about 15%).
  • If net migration doesn’t recover and if courses remain online, vacancy rates in the most central areas of Montreal will remain high. Elsewhere in the metropolitan area, rates are not expected to change significantly.

Ottawa home sales and prices will continue to grow, but at a more modest pace than in 2020

  • In 2021, starts will trend lower than their 2020 peak, but remain in a range above historical averages. The only drag on starts activity this year is the high number of apartments currently under construction. Low-rise construction will trend higher as the pandemic caused a rise in demand for these units given the search for larger space and remote work.
  • Sales growth is expected to slow by year-end and in 2022, before picking up in 2023. The 2021 upper end of the sales range could still be higher than 2020 sales. The anticipated slowdown in activity toward the end of this year, and in 2022 may come from the slowdown of pent-up demand. Prices will continue to grow until 2023, though growth will be more modest in the latter two years of the forecast period.
  • Rental vacancy will remain elevated this year due to weak demand from online studies and reduced migration amid rising rental apartment completions. This imbalance between demand and supply is only a short-term phenomenon. Demand will strengthen once more as students and immigrants return and as homeownership affordability challenges remain.

Vancouver CMA will see home prices continue to increase

  • As a gateway city in Canada, closed borders have a disproportionate impact on Vancouver’s housing market. The main disruption has been and will continue to be a smaller pool of renters in the city than otherwise because migrants to Vancouver tend to be young.
  • House prices will increase mainly due to the relatively good position of household budgets from both government transfers and lower interest rates. They will also increase because the pool of buyers in Vancouver is relatively unaffected by the negative economic shocks of COVID-19.
  • Higher home prices in Vancouver are also a direct indication of the scarcity of homes for sale. This will act as a fundamental limit on the growth of sales in the market. As the price is bid up, a smaller pool of buyers will be able to continue to make transactions. Therefore, the current high levels of sales activity in Vancouver is expected to fall back to the long run average sales level.
  • Rising prices will have the knock-on effect of making many more sites economically viable for development. This will mean that elevated starts levels that were experienced over the past five years will be maintained rather than falling back to a long term average.

Calgary will see moderate growth in resales and new home construction in 2021

  • Economic and oil market stability will serve to drive employment and migration in near future, as pandemic restrictions are lifted. This will serve to increase demand in housing for the short term.
  • Housing starts are forecasted to increase in 2021, driven by strong demand in single detached new homes. They will moderate lower in 2023 as high levels of condominium inventory remains unsold.
  • Resale activity will be higher in 2021 as the resurgence of demand at the end of 2020 continues, driven by lower mortgage rates. Economic conditions such as employment and income also support resales activity. However, rising rates in 2022 and beyond will moderate resale activity.
  • Return in migration and employment to the Calgary CMA will return demand for rental units, lowering vacancy rates. As conditions improve, average rent levels will see little growth from future increases in rental supply.

Edmonton housing market projected to increase with recovery of oil prices and improvements in economic fundamentals

  • Housing starts are expected to increase in 2021 driven by short term lower interest rates and stabilized oil markets. They will moderate in 2022 and 2023 as interest rates rise. Housing starts will also see growth from the readily absorption of new home inventories.
  • Resale levels will increase in 2021 as buyers are supported by lower mortgage rates and stabilized economic conditions. Demand will be driven higher for single detached homes as mortgage rates improve purchasing power for higher price product.
  • Higher home prices will also continue to increase in Edmonton in 2021, but slow down in 2022 and 2023.
  • A return of international and interprovincial migration will help to reduce rental vacancies. As a successful vaccination program is carried out, and travel restrictions lifted, migration into Edmonton will increase rental demand. However, increases in rental supply are expected to keep average rents stable.

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