As we head into the 2nd quarter Canada’s Realtors are forecasting another year of records, while the country’s housing agency continues to call for caution.
Market risk remains moderate
In its latest Housing Market Assessment, Canada Mortgage and Housing Corporation is maintaining its overall vulnerability assessment at moderate.
High demand, low supply
The key concern is “overheating”, which CMHC defines as demand outpacing supply in the resale market. It is a reality that realtors have been pointing out for the past several months. The housing agency also cites ongoing concerns about price acceleration and overvaluation, being driven by high demand, especially in eastern Canada.
Quarter-over-quarter assessments have not changed much for individual markets, but CMHC is noting evidence of heightened vulnerabilities. A number of these risks have not crossed CMHC’s “critical thresholds”, but they continue to increase. There are now five centres classed as high risk, up from just two in the previous HMA report.
Continuing – albeit slower – immigration, government income supports during the pandemic, and declining real mortgage rates are all listed as mitigating factors by CMHC.
Realtors forecast more records
The Canadian Real Estate Association cites these factors, along with the sudden lifestyle changes brought on by the pandemic, as it predicts record-setting sales and increasing price acceleration.
CREA expects to see more than 700,000 properties change hands in 2021, with double-digit sales growth in every province. The association is forecasting that the national average home price will rise by 16.5% to $665,000.
Demand & urgency diminish
The Realtors do not expect the growth to persist though. CREA is forecasting a return to more typical levels moving into 2022. That prediction backs up concerns about real estate speculation being driven by irrational expectations of ongoing, increasing price growth, expressed by the Bank of Canada.
CREA projects sales activity will decline by nearly 13% in 2022, with price acceleration slowing to about 2.0%, for a national average price of $679,000.
COVID conundrum
The COVID-19 pandemic continues to be the greatest variable in these reports. Both CREA and CMHC see the vaccine roll out improving, case numbers dropping and restrictions loosening. These are all factors that will likely take anxiety and urgency – real or imagined – out of the market and restore more typical conditions.
Technical note
CMHC has altered some of the language in its Housing Market Assessments. “Overbuilding” is now being called “Excess Inventories”. It is hoped the change will clarify that CMHC is monitoring unoccupied units (vacancies) rather than excess construction activity.