2021: Will the Housing Market Crash?

Homeownership has become a long-lost dream for many young Canadians. Home prices are soaring, and not just in hot markets like Toronto and Vancouver. Across the entire country, Canadian are begging governments to implement some sort of relief measure.

Many were hoping the pandemic would finally make their dream of owning a home a reality. Even the Canada Housing and Mortgage Corp warned Canadian about the possibility of an 18 per cent drop in house prices following the first few months of 2020. Instead, there was a boom in the market that many did not see coming. “According to the Canadian Real Estate Association- as of April of this year, home prices across Canada were up 23 per cent compared to April of 2020 (CREA).

The Bank of Canada has identified 3 cities as “exuberant” on their heat map of Canadian cities- Toronto, Hamilton and Montreal. Ottawa is identified as being on the verge of being identified as “exuberant.”

That being said, many people have been afraid that Canada’s housing market will crash. The National Post published an article last week posing 6 housing bubble-related questions to a panel of real estate experts. Here is one of their questions:

That being said, many people have been afraid that Canada’s housing market will crash. The National Post published an article last week posing 6 housing bubble-related questions to a panel of real estate experts. Here is one of their questions:

“ If the market isn’t a bubble set to pop, what will bring down the housing?”

The majority of the experts agreed that the market has already begun to cool. One expert Paul Taylor (President and CEO of Mortgage Professionals Canada) says that most people will be fine when interest rates rise and prices come down.

“Taylor: We definitely have had some bubbles, but interest rate spikes are the pin that bursts them. Five-year fixed terms are 2 per cent now. So if the five-year fixed goes up to 3 per cent or 3.5 per cent in the next three years — I don’t think it’s going to move in the next 18 months — that’s not going to be calamitous. Most people who purchased their first homes during this period are young, middle-class Canadians that are at the very bottom end of their income trajectory. They have the highest propensity for income growth. I’m sure the vast majority of people will be fine.”

Another expert, Brendon Ogmundson (chief economist at the British Columbia Real Estate Association) said that,

“The market is already starting to calm, and we anticipate that trend will continue over the next 12 to 18 months. That should help price growth return to balance in the medium term. The one scenario that could accelerate a slowdown is a sustained increase in Canadian inflation that prompts the Bank of Canada to raise its policy rate sooner and more aggressively than expected. However, that is a very low-probability scenario.”

Click on this link to read the rest of the interview on the National Post Website.

Another factor that was brought up was the housing supply. The current housing supply does not match the rate at which our population is growing. As borders begin opening up again immigration is bound to drive up the demographics, especially in heavy job markets like the GTA. “The GTA alone took in 118,000 immigrants last year, a third of the total number of immigrants to Canada. There were more immigrants that went to Toronto in 2019 than the four Atlantic provinces, the three territories, Saskatchewan, and Manitoba combined (Thevenot, 2020).” Many of these immigrants are international students and feeding into the demand for housing, not just the rental market. According to Mike Moffat, senior director of Smart Prosperity Insititute in this global news article, “pool of educated newcomers with Canadian credentials is a coveted resource for the labour market and the economy, it also creates a demand for housing for which governments at all levels have largely failed to plan.” 

Therefore, it’s easy to see why the housing supply shortage is causing home prices to skyrocket- as the demand for housing increases so should the supply. Moffat also believes that the tougher mortgage rules which came into effect on June 1 should “pour some cold water” onto the sizzling hot market. However, he also believes it ultimately comes down to the housing supply shortage that will inevitably drive the prices back up again.

Sources: 

1. Alini, E. (2021, June 5). Will the housing market crash? Why home prices may stay hot. Global News. https://globalnews.ca/news/7881183/canada-housing-boom-bust- immigration-home-prices/ 

2. Jarvis, C. (2021, June 7). Afraid Canada’s housing prices will crash? Don’t be, these experts say. National Post. https://nationalpost.com/moneywise/afraid-canadas-housing- prices-will-crash-dont-be-these-experts-say 

3. Emenogu, U. (2021, May 20). Detecting exuberance in house prices across Canadian cities. Bank of Canada. https://www.bankofcanada.ca/2021/05/staff-analytical-note-2021- 9/#footnote-ref-4