May 14 Market Updates
Low interest rates and the demand for more space to ride out the pandemic are why the Canadian housing market rose to extraordinary heights over the past year. In some markets, the annual price gains are more than 30%. Home sales activity will rise this year, then taper off or cool in 2022 but CMHC sees prices continuing to march higher over the coming years.
Bob Dugan, the chief economist at CMHC, said, “Economic conditions are expected to return to pre-pandemic levels by the end of 2023 if broad immunity to COVID-19 takes hold by the end of 2021.” He expects the pace of home sales and price growth to be moderate from 2020 highs over the same period.
The housing frenzy may begin to unwind with the acceleration of vaccine distribution and the quicker-than-expected economic recovery. CMHC also predicts the standard five-year mortgage rate to rise with faster economic growth. The rates, however, are likely to stay at very low levels by historical standards, Dugan said.
While the pandemic drove the household savings rate higher, CMHC predicts it to fall. Unfortunately, the average price will keep rising instead of falling. The housing agency said the average sale price of a home in Canada could increase to $649,400 in 2021, from $567,699 last year, and could soar as high as $704,900 by year-end 2023, which could mean steep prices for home buyers. 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. The agency also said there are many unknowns, including the trajectory of the pandemic, the rate of inflation, the pace of new property listings, and the future of remote work.