While the rest of the economy struggles amid the coronavirus global pandemic, the Canadian real estate market continues to flourish in times of uncertainty. Last year, Canada’s housing sector accelerated, surprising even industry veterans who have seen it all in their careers. It looked like the real estate market was the only segment of the national economy that was immune to the COVID-19 public health crisis. From major urban centres to rural communities, record-setting growth in sales activity and prices was the norm rather than the exception, despite a deep recession and a pandemic.
According to the Canadian Real Estate Association (CREA), national home sales established another record high to cap off 2020, rising 7.2 per cent in December and 47.2 per cent year-over-year. The national average sale price surged 17.1 per cent in December.
“It’s official; despite all the challenges, 2020 was a record year for Canadian resale housing activity,” stated Costa Poulopoulos, Chair of CREA, in a news release. “While momentum continues into 2021, surging COVID cases and a return to April-like lockdowns in some provinces means we’ll be revisiting some of those virtual technology solutions to process deals in the first few months of the year.”
Was this an anomaly or part of a new bullish cycle? It depends on what happens in the next 12 to 18 months.
The new year has just begun, and the Canadian real estate landscape is off to a strong start on the heels of a hot 2020. Housing prices and residential sales from coast to coast performed remarkably well. Detached, semi-detached and townhouses experienced gains last year, and various factors – from historically low interest rates to strong demand – could contribute to a continued upward trajectory in 2021.
Will 2021 Be a Repeat of 2020?
According to the RE/MAX Canadian Housing Market Outlook (2021), average residential prices are projected to increase between four per cent and six per cent, with most of the nation’s urban real estate markets expected to record growth. From Vancouver and Saskatoon, to Toronto and cities in Atlantic Canada, the Great White North is expected to see a comparable performance to last year.
The key drivers to this continued growth? The report identified a few of these contributing factors:
- Move-over buyers: Homebuyers looking for a better deal on a new home.
- Move-up buyers: Homebuyers selling their current property to upgrade to a more expensive home.
- Relocations: Households are not necessarily undertaking an “exodus,” but many homeowners are relocating to less-dense cities and neighbourhoods for more space and lifestyle options.
- Low Interest rates: The Bank of Canada (BoC) is holding its benchmark rates at a record-low of 0.25 per cent.
- Limited housing supply: Housing inventory was severely stretched, with the majority of Canadian housing markets sitting in seller’s territory. Coupled with rising demand, this was a recipe for rising prices.
- Virtual real estate solutions: CREA is already forecasting that the industry could return to virtual technology solutions amid the pandemic, and the RE/MAX data suggests that more than one-third of homebuyers would prefer to work with realtors who possess and utilize digital options.
Industry professionals will be keeping a close eye one specific metric this year: new listings.
Shaun Cathcart, CREA’s Senior Economist, says this is an important statistic to watch, especially in the spring, since it can inform the market how many existing homes will be put up for sale.
“So we have record-high demand and record-low supply to start the year. How that plays out in the sales and price data will depend on how many homes become available to buy in the months ahead. Ideally, we’d like for households to be able to find and acquire the homes that best suit their needs and for housing to remain affordable, but the fact is we’re facing a major supply problem in 2021,” he said in a statement.
Is Housing Growth a Guarantee in 2021?
The central bank believes that the Canadian real estate market will soften later this year, despite the flood of cheap money and low financing costs pervasive throughout the economy. With the BoC potentially easing monetary policy to facilitate the recovery, it may be difficult to gauge its impact on an already strengthened market.
The Canada Mortgage and Housing Corporation (CMHC) explored what the the real estate sector could look like under a variety of recovery conditions, which looked at a decline of 14 per cent – or as high as 48 per cent – this year, in what it describes as a W-shaped recovery.
The Royal Bank of Canada (RBC) wrote in a new report that the pandemic housing market would be off to an incredible start in 2021, but there will be a hangover later in the year.
“The strong annual tally will mask a gradual cooling in the market through the year, however,” said RBC economist Robert Hogue in the report. “We expect low supply to become a growing constraint, pandemic-induced market churn (resulting from changes in housing needs) to wane, and a slight rise in longer-term interest rates and material erosion of affordability to cool demand by a few degrees.”
Pandemic? Recession? Could Canadian Real Estate be Immune to Both?
Canadian real estate sales ballooned at the fastest pace since 2010, and homebuyers are scooping up properties throughout the various seller’s markets as quickly as possible. Lower inventories, ultra-low borrowing costs, immense demand, and evolving consumer behaviours are all elements to explain what is transpiring amid the coronavirus pandemic housing market. Since these aspects are unlikely to change in the coming months, it is not easy to foresee a slowdown in the Canadian real estate sector.