Quarterly Forecast: Housing Activity to Continue Easing Over Second Half of 2021 and Into 2022

The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate boards and associations.


Over the past several years, record levels of international immigration (not including 2020), low interest rates, and an increasingly middle-aged millennial cohort have combined to fuel very strong household formation and housing demand in Canada. Recall that prior to COVID-19, the number of available listings nationally was already at a 14-year low and the national number of months of inventory on the eve of the lockdowns had fallen to below four months (seller’s market territory).

COVID-19 supercharged trends that were already present, with even stronger first-time home buying activity teaming up with a surge in existing owners choosing to pull up stakes and move to find the right place to ride out the pandemic. This served to drive prices sharply higher while supply fell further to reach all-time lows. That said, with vaccination now well underway, the urgency with which so many sought out housing over the last year appears to be fading and the market is settling down, albeit from a very high starting point.

The mass vaccination of society and reopening of our lives and economies along with the associated migration and international immigration introduce a considerable amount of uncertainty to the outlook over the balance of 2021 and into 2022. Still, it’s hard to see how these factors will not act as tailwinds to both housing demand and prices, particularly as inventories are still stuck at record lows.

Current trends and the outlook for housing market fundamentals suggest activity will remain strong through 2021, resulting in a record number of sales this year despite the slowdown that began in April. Over time, activity is forecast to continue returning towards more typical levels. As a result, 2022 is expected to see significantly fewer MLS® transactions than in 2021 while nonetheless still marking the second-best year on record.

Some 682,900 properties are forecast to trade hands via Canadian MLS® systems in 2021. This would be a record-setting result, and an increase of 23.8% over 2020. The strength of demand in 2021 has been geographically broad-based and CREA anticipates double-digit sales growth in every province, with the exception of Quebec, where the second half of 2020 was comparatively stronger than the first five months of 2021.

The national average home price is forecast to rise by 19.3% on an annual basis to just over $677,775 in 2021. This reflects the current unprecedented imbalance of supply and demand, currently close to two months of inventory nationally. While market conditions have eased a little in recent months, they nonetheless continue to favour sellers to some extent in virtually all local markets.

On a monthly and quarterly basis, sales are forecast to continue trending back towards more typical levels through the latter half of 2021 and into 2022. Limited supply and higher prices are expected to tap the brakes on activity in 2022 compared to 2021, although increased churn in resale markets resulting from the COVID-19-related shake-up to so many people’s lives may continue to boost activity above what was normal before COVID-19. Indeed, it’s possible that many of the moves associated with changes related to remote work won’t play out until further down the road when we have more certainty about what the future will look like post-COVID-19.

National home sales are forecast to fall by 13% to around 594,000 units in 2022. This easing trend is expected to play out across Canada with buyers facing both higher prices and a lack of available supply, while at the same time the urgency to purchase a home base to ride out the pandemic continues to fade alongside the virus itself.

Sales declines are forecast to be largest in B.C. and Ontario, resulting in a “Simpson’s Paradox” in the average price whereby every province is forecast to post a larger year-over-year increase than the one at the national level due to the compositional shift in sales away from the most expensive provincial markets. The national average price is forecast to edge up by just 0.6% to $681,500 in 2022.

Learn more on creastats.ca.

Housing Markets are Calming Down—But for How Long?

Housing Markets are Calming Down—But for How Long?


The main theme of Canadian housing markets in June 2021 was the same as in April and May—things are continuing to calm down. Activity has slowed and prices are not rising as fast as they were.

Sales were down about 8.5% from May to June. Meanwhile, new listings didn’t really change on a month-over-month basis, so that took a little pressure off the supply side.

But its important to point out conditions are only calming down relative to the almost unbelievable pace of the past year. Compared to any other time is history, sales activity, market conditions and price growth are all still at record levels.

Breaking down the numbers

Even though seasonally adjusted sales as of June were down a cumulative 25% since March, the June sales number was still a record for that month. The number of months of inventory was 2.3, up from 1.8 in March but still less than half of what would constitute a balanced market. And price growth was about 1% month-to-month in June, well down from 3% a few months back but certainly not a slow rate of growth.

I guess I’d say while it feels like we’re slowly getting back to “normal”, it’s still a long road to get all the way back to a normal we once knew.

Sales may be setting less-extreme records than they were a few months ago, the main issue remains the supply shortages, and those are as acute as ever right now. That needle has not moved an inch back towards average or “normal”. Recent sales declines have mostly followed declines in new supply, so how much of it is even a demand story?

Did all those frustrated millennial would-be buyers just give up on their dreams of homeownership forever? Doubtful. At the same time, the break we’ve had on the population growth side of things is likely now coming to an end.

What comes next?

While the frenzy and emotions faced earlier in the pandemic seem to have somewhat dissipated for now, the key ingredients of a seller’s market are all still in place, as they were before COVID-19. Maybe with everyone getting vaccinated, this summer is a chance for all of us, and the housing market, to take a breather before the world starts back up again this fall.

But we can’t spend the whole summer relaxing by the lake, because a federal election is looming, and housing policy once again appears set to feature prominently. The difference this time will likely be a focus on getting more housing built in the years ahead, so after all this time at least we’re finally having the right conversation.

Getting the supply issue to the forefront of the housing policy discussion was hard enough. Wait until you see how hard it will be to get anything done about it! We’ll get see what each party is proposing soon enough.

As our Director and Senior Economist, Housing Data and Market Analysis, Shaun Cathcart provides housing market intelligence to Boards, Associations, members, and real estate industry stakeholders. He spends much of his time analyzing and writing about Canadian housing trends. In his downtime, you can find him on his bike, on the volleyball court, and enjoying time with his family.

Bank of Canada Holds Policy Rate, Cuts Growth Forecast

 

In a scheduled announcement on July 14, 2021, the Bank of Canada kept its target for the overnight lending rate at its effective lower bound of 0.25%. The Bank also adjusted its Quantitative Easing (QE) program lower to a target of up to $2 billion of Government of Canada bonds weekly to reflect “continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook.”

The Bank said economic growth in Canada slowed in the second quarter as the third wave of the Coronavirus hit. Despite this, falling COVID-19 cases, progress on vaccinations, and easing containment restrictions all point towards a strong pickup in the second half of 2021. The Bank now expects Canadian GDP growth of around 6% in 2021—slightly lower than was expected in April’s Monetary Policy Report—but it has revised up its 2022 forecast to 4.5% and projects over 3% growth in 2023.

The Bank expects the Canadian economic recovery to be led by consumption as households return to more normal spending patterns. At the same time, it expects housing market activity to ease from record levels, which data shows is already well underway.

What’s next?

Looking ahead, the Governing Council judges “the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support.” It also stated it “remains committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”

In the Bank’s July projection, this happens sometime in the second half of 2022. The Bank also stated it will “continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.”

Mortgage rates

Effective June 1, 2021, the minimum qualifying rate for all mortgages is the greater of the mortgage contract rate +2% or 5.25% as set by the Office of Superintendent of Financial Institutions (OSFI) and the Department of Finance. All mortgage applicants must qualify for financing based on an interest rate no less than the benchmark five-year lending rate, even if the mortgage is for less than five years. 

Canada’s major chartered banks are currently advertising five-year fixed mortgage special interest rates of around 2.44%. Home buyers can often negotiate the interest rate for mortgage financing based on their creditworthiness and the degree to which they do other banking business with the mortgage lender. 

The Bank of Canada’s next scheduled interest rate announcement will be on September 8, 2021. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in its Monetary Policy Report on October 27, 2021.

Learn more about the impact to Canada’s housing markets on CREAStats.ca.