CANADA’S HOUSING MARKET WILL START SHOWING GREEN SHOOTS DURING EARLY 2021

The Voice of Canada News: By H. C. Gera (Special Correspondent)

Let me begin with a quote by Mark Zandi:

“Buying a home wouldn’t make sense if house prices were likely to decline further. No one wants to catch a falling knife.”

Whenever you open a newspaper you can’t escape without reading something about the housing market. The tumbling down of the housing market in Canada due to the COVID-19 pandemic is indeed worrisome for those dealing in real estate. This could give a jolt to the Nation’s Economy in one way or the other. There seems to be a need to understand the concept of the housing market in the present scenario so that some steps could be initiated at the Government level to revive this particular segment.

Real Estate Journey on a Zig Zag Path: Believe it or not, the journey of Real Estate in Canada is on a zigzag path. COVID-19 lockdown slowed the Canadian housing market right from the beginning in March-April 2020. But the situation in British Columbia and Ontario reflected a bounce-back activity. No doubt there was an impact of the pandemic but according to experts, one could visualize a kind of optimism in the housing market as the buyers have started showing interest in exploring different locations in the neighbourhoods suiting to their needs.

Dip in the Prices of Housing Market: According to the experts, it is predicted that Canada’s housing market may face a crisis when it experiences a significant drop in the prices. As per The Canada Mortgage and Housing Corp (CMHC), there could be a pessimistic outlook of Canada’s Housing market due to the impact of the COVID-19 pandemic.

In May 2020, CMHC had forecasted that the prices will fall between 9% and 18% in 2020 before recovering in the first six months of 2021. CMHC’s average housing prices estimates for August stood at $586,000, while it forecast average prices to be around $460,292 in the first quarter of 2021. This suggests that the housing prices might fall by a massive 21.5% in the next six months. It could be easily understood that the rising unemployment rate amid the pandemic has negatively impacted the housing demand. While quoting the figures for housing sales, these were up 6.2% in Canada for the month of August 2020, which was the fourth consecutive month of increase while benchmark prices were up by 9.4% when compared with August 2019. However, there should not be a kind of complacency about these figures when some contradictory expressions are observed by the experts. The warning signals are already beaming for the home buyers because there would be an unprecedented trend of lowering of prices of home in the times to come. The situation is really tough to invest in housing at this moment.

The Housing Market in Canada: Canada’s housing market has appreciated by 90% since 2005. Canada’s economy has been fueled by significant growth in the country’s housing prices. Between 2005 and early 2020 (Before COVID-19 Pandemic) the housing prices in Canada were up by 90% whereas in other Countries the figure was approximately 33%. The further analysis revealed that in the first quarter of 2020, housing prices rose 3.4% in Canada, while it fell 3.3% in the United States.

Another survey by the experts suggests that the average residential sale price in Canada could increase by 4.6 percent during the remainder of the year. This is compared to the 3.7 percent increase that was predicted in late 2019.

Sluggish Micro-Environment: The resiliency shown by the housing market has given an extremely sluggish macro-environment. Further, the pandemic has also reduced the number of immigrants entering Canada, a factor that has been a key driver of housing demand. Since last more than nine months, the immigrants’ flow has reduced considerably hereby the demand for housing has further declined.

Moderate Evidence of Over-Evaluation: At the National Level, Canada’s housing market has shown evidence of over evaluation. According to a release by the Housing Market Assessment (HMA), “The evidence of rising imbalances in some local housing markets coupled with the general weakening of housing market fundamentals results in a moderate degree of overall vulnerability being maintained for the Canadian housing market.” It is all the more confusing to understand the trend of over-evaluation and the overall vulnerability of the housing market. But the fact remains the same that a Canadian would think twice before buying a home. The data of sales of houses during COVID-19 lockdown and the home prices increase in July and August are still not clear and the projections of prices of the housing market could become more complicated.

Q2 incorporated risks of overheating, price acceleration and overvaluation, including Toronto, Vancouver, Victoria, Hamilton, Ottawa, Moncton and Halifax.

In Eastern Canada, Moncton and Halifax are showing moderate signs of overvaluation, while a sustained increase of prices in Ottawa and Montreal are signalling moderate price acceleration. All had registered price growth at the onset of the pandemic and continued to post gains in the second quarter.

In the Prairies, Edmonton’s and Calgary’s economic woes continued, aggravated by the onset of the pandemic. CMHC reported that home prices in both markets fell in Q2, but that the rate of decline was “below than suggested by housing market fundamentals,” leading to an increase in overvaluation estimates.

Home Prices Across Canada: A forecast by the experts suggested that the home prices in Canada would tumble down by 7% during 2021. Unemployment will continue and the real estate business shall further dampen. Besides this oversupply of single-family homes in Calgary and Edmonton could pose a problem for the real estate market. There will be an affordability issue to buy a home in Vancouver and Toronto. In nutshell, the housing market will not be able to adopt an escape route from the extremely poor conditions of the Labour market. According to market experts in the housing, the bubble may finally crash this year or I may say that it is on the verge of a crash.

Shift from Large Urban Centers to Suburbs: The housing market in Canada is witnessing another interesting shift in the housing needs of Canadians. A survey revealed that over 30% of Canadians now want to live in rural or suburban areas rather than in large urban centers. They need a better environment with more amenities. This shift in choices has given a new offshoot of business in real estate. So the housing market in Canada may wear entirely a new look thus giving a jump in business. It is rightly said that every crisis has an opportunity in disguise.

The Flourishing Sub Urban Areas: The real estate in Canada shall come up in a big way and the present trend is to be believed, suburban areas are now going to flourish and the housing market will see an upward trend. The experts believe that the green shoots will be visible during Q4.

Source: HMA, CMHC, REMAX