Risk of Increased Housing Inequality in Canada

The Canadian real estate market experienced a sudden increase in home prices during the last few months, as the pandemic unfolded. Still, it is not clear whether this will be a long-term trend or just something short-lived. Meanwhile, fears of rising housing inequalities are on the horizon, as people’s incomes and purchasing power are affected differently by COVID-19.

Home Price Changes

As the pandemic swept through the country, its economic impact was immediately visible; COVID-19 led to increased federal government debt, shattered thousands of businesses and wiped out 1.1 million jobs.

In spring, research consultancy firm Capital Economics predicted that the pandemic would help push home prices down marginally. However, once the lockdown measures were lifted, a string of hot months followed for the housing market. As a result, the company later forecasted a 12% jump in Canada’s average resale home price in the next few years. That’s on top of the fact that the average price already witnessed an 18.5% increase these last 12 months, according to the Canadian Real Estate Association (CREA).

Mortgage rates have hit all-time lows, with 5-year fixed-rate mortgages sporting rates of less than 2%. According to Capital Economics senior economist Stephen Brown, falling mortgage rates have contributed to a 24% jump in buyers’ purchasing power over the last two years, although average home prices have risen by only 4% in the same time frame. He noted:

“There is still scope for overall home prices to rise sharply, primarily due to much lower borrowing costs.”

Credit ratings agency Moody’s Analytics, on the other hand, believes the recent price surges will not last long. Despite mortgage deferrals and low mortgage rates contributing to a strong housing market so far, the company predicted it would all soon fade as lower incomes and high unemployment will end up hindering homebuying.

According to their report, the largest house price declines were recorded in Calgary and Edmonton, two cities already affected by the struggling oil and gas industries.

Moody’s forecasted a 7% decline in Canadian home prices for 2021 and stated prices would fully recover to pre-COVID levels only by 2023. The agency’s economist Abhilasha Singh also mentioned:

“The pandemic will lead to even further widening in economic inequality, including housing.”

Housing Inequality: Houses vs Condos

Due to growing health concerns and the rise in remote work, the demand for more spacious houses has increased. Brown noted that as people’s preferences have changed, the need for condos might end up being overshadowed by that of detached homes altogether, with prices being affected as well. For instance, the sales to new listings ratio in Toronto would already suggest a 5% price decline for condos in the area.

Still, Brown believes the mass departure from cities in favor of smaller markets with bigger homes is not a trend that’s here to stay in the long run. He thinks COVID-19 merely accelerated normal life choices for a specific category of residents:

“Say for example a certain (percentage) of 30-35 year olds move to the suburbs each year to start a family. The pandemic has encouraged a much bigger share to move this year….”

Singh pointed once more to a rise in housing inequality and stated that condos would continue to be on the radar in the years to come, especially for residents that have been affected by the pandemic to a larger extent:

“While demand for single-family homes with ample space and large pantries may rise, so too might demand for smaller apartments and condos given the struggle many families will face in saving for a down payment.”

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