Not Likely That Canadian Real Estate Prices Will Decline

The strength of the Canadian real estate market has continued to prove itself throughout the pandemic. RE/MAX Canada expects growth for the remainder of 2020. However, we're not out of the woods yet, with an active market for the foreseeable future and balanced conditions at the national level into 2021, which is great news for Canadians.

The Canada Mortgage and Housing Corporation's Chief Economist Bob Dugan told reporters at a press conference that the agency stands by its previous forecast in May that warned of a drop 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."

RE/MAX expressed their opposition over CMHC's forecasts in the spring.  Dugan's statement continues to raise eyebrows – RE/MAX's and other industry members as well, as the Canadian housing market continues on its uphill course.

They understand some of CMHC's reasoning but feel the market data doesn't support such a steep price decline. Especially with Toronto and Vancouver's two largest real estate markets maintaining their uphill momentum. The Prairies meet different factors and challenges due to the resources sector; however, Ontario and BC expect to balance Saskatchewan and Alberta's more modest activity.

Canadian Real Estate prices have continued to remain resilient. And no one could have forecasted the success of the Canadian real estate market in the wake of COVID-19. During March and April, we experienced a dramatic decline in activity at the height of the pandemic. However, transactions promptly resumed across the country as real estate professionals and consumers adapted to social distancing measures. They embraced technology that allowed continued transactions, despite disruptions to the economy and daily life.

RE/MAX Canada changed their forecast last month for 2020 national average house price, raising it to +4.6% from their initial prediction of +3.6% at the end of last year.

To reference prices declining, "the impact was on rent as opposed to homeownership," said Benjamin Tal, Chief Economist at CIBC World Markets. His confidence in the Canadian housing market was due to sustained low-interest rates and substantial repressed demand. "Eighty percent 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 homeownership," he noted.

RBC Economics stated 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 infers the housing market shouldn't be as busy as it is. However, when you look at income levels, it makes sense. They aren't behaving like we're in a recession, Caranci explained, and incomes are the same or at higher levels than in past recessions. Consequently, there's a disconnect between the income levels and employment rate, which adds fuel to the housing market.

The Ontario Real Estate Association recently surveyed Ontarians, seeing a substantial majority think housing is an important (60%) or somewhat important (32%) contributor to the provincial economy's recovery. They are now urging governments to help stimulate the market with incentives like a "Land Transfer Tax Holiday" to increase the number of homes on the market and address some of the province's supply issues.

RE/MAX thinks we may see "aftereffects" from the bustling market that we're encountering right now. However, overall as we head towards 2021, the prediction is that more balanced conditions across the Canadian housing market are warranted. 

Christopher Alexander Executive Vice President and Regional Director RE/MAX INTEGRA, Ontario-Atlantic Canada  [September 28, 2020]. "Will Canadian Real Estate Prices Decline? Not Likely" [online]. Available from: https://blog.remax.ca/will-canadian-real-estate-prices-decline-not-likely/ [Accessed 29 September 2020].