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Buying or selling – key projections for Canadian real estate in 2021

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Buying or selling - key projections for Canadian real estate in 2021

Human beings are obsessed with knowing the future. Despite all the evidence to the contrary – shoddy weather reports, champions getting knocked-out in the first round of the playoffs by veritable nobodies – we cling to this idea that we can see what’s coming. It’s a comforting fantasy, sweet in its naivete; one that assumes our daily chaos is really just the window-dressing for an otherwise orderly world.

So it’s rather fitting – and actually predictable – that after a year where every real estate projection was blown to bits by an utterly unforeseen housing boom, 2021 is already awash with a shower of predictions for the Canadian real estate market.

What follows is a selection of projections for the Canadian housing market from some notable experts –and whether Mortgage Broker News is buying or selling each one.

CIBC’s base-case scenario: Canadian home prices rise by 2.4%
CIBC recently came out with one of the banking sector’s more optimistic views for the Canadian housing market, a modest increase of 2.4% in real estate prices by October. (In December, RBC projected an 8% decline.) That’s the bank’s base-case scenario, or what could be expected if conditions today are allowed to continue. CIBC’s worst-case scenario involves a 6.9% decrease in home prices, while its best-case projection is an increase of 11%.

Buy or sell? Sell.

A 2.4% increase would place 2021 slightly below 2018’s increase of 2.51%, which seems unlikely. Remember that 2018 marked a cooldown period for Vancouver and the continuation of market softness across the Prairies, in Newfoundland, and, to a lesser extent, in New Brunswick. The current low interest rate environment has energized buyers from coast-to-coast, and prices have a long way to go in cities like Edmonton, Saskatoon, and Saint John before sellers will have trouble getting the prices they’re after.

Even though businesses will continue to falter as COVID-19 lockdowns drag on, the majority of the people who will be affected will be renters, not homeowners, so the possibility of a surge of inventory hitting the market and keeping prices in check is not one to bank on. Dwindling supply might hamper the number of sales that take place, but it will only increase prices. CREA expects the average home price to increase by 9.1% in 2021.

CIBC’s best-case scenario is far more likely than its base-case, although buyers might wonder who it’s actually “best” for.

“Supply shocks” could devastate Vancouver, Toronto markets
Investment research firm Veritas predicted that two possible “supply shocks” could lead to plummeting home prices: the liquidation of rental properties by investors and a catastrophic end to the country’s mortgage deferral experiment.

In exploring the latter possibility, Veritas ran three scenarios where between 5% and 15% of homes with deferred mortgages found their way on to the market after their deferral periods ended, resulting in real estate prices falling by 4-11% nationally, 10-17% in Vancouver, and 15-26% in Toronto.

Buy or sell? Sell.

Considering the fact that borrowers have been exiting deferral programs left and right since September and have yet to desperately flood the market with supply, there is little evidence that even 5% of deferred mortgages, let alone 10% or 15%, will prove so problematic that borrowers will have to liquidate their properties.

By October 31, the number of deferred mortgages at Canada’s largest banks totaled less than 70,000 and was 86.3% lower than in the previous quarter. In December, RBC announced that as of the end of October 2020, 90% of the deferrals offered through the bank’s client relief program had expired. Only 2% of RBC’s deferred mortgages had slipped into delinquency at that point, and a third of those were delinquent prior to the deferral being put in place.

Some borrowers will fall through the cracks and have to sell, but a 15% decrease in the average home price in Toronto? That would require an utter catastrophe.

Regarding investors, some will have to crash out of the condo market, particularly those who were using their properties as Airbnb’s and are now painfully cash flow negative each month. Many won’t be able to carry their properties until a flood of vaccinated travellers return to their cities, nor will they be able to afford to rent their properties long-term at today’s lower rental rates. But many will resist the urge to sell, knowing that the return of international students and other immigrant renters is inevitable, and that rents and condo prices will once again be on the rise.

Ex-urbs will see more activity than major urban cores
This projection comes courtesy of, among others, Moody’s, who said in late 2020 that it expects to see “greater resilience in lower-density markets outside Canada’s large urban cores,” driven by demand for properties with more space for working from home. Smaller, more affordable markets, Moody’s said, “will particularly benefit from this trend.”

Buy or sell? Buy.

This one’s a bit of a no-brainer, and not simply because of the new work-from-home reality so many of us are still adapting to. Remote work has simply juiced a trend that was already intensifying in Canada’s most active real estate markets: drive until you qualify. Now that remote work has freed so many Canadians from having to live within commuting distance of their jobs, they are able to purchase the properties they want essentially anywhere they feel comfortable living.

This shift in demand comes at an opportune time, when home prices in major markets like Toronto, Ottawa, Montreal, Victoria, and Vancouver are rising at a rate so far beyond that of their residents’ wage growth that moving hours away is the only way most of them will ever be able to afford a home.

But the secondary markets being buoyed by the urban exodus are not likely to remain affordable alternatives for long. Competition is already flaring up in off-the-beaten-path communities like Bancroft, Ontario, where the average home price in November 2020 was 24.3% higher than a year before, and in Woodstock, Ontario – population 40,000 – which saw its benchmark price for single-family homes leap 28.4% year-over-year in November.

It will be interesting to see just how much homeowners used to big city amenities such as widely available healthcare, abundant schools, and eclectic nightlife will be willing to sacrifice in order to find affordable housing. One assumes there has to be a limit, particularly for younger buyers who have proven willing to spend ridiculous sums on rent to live close to the action. But in a freshly birthed, post-COVID world, who can be sure?

MBN’s call
There will surely come a time when Canada’s most reliable housing markets run out of steam, properties start piling up, and prices begin retreating. (Experts have, after all, been calling the growth being seen in the country’s real estate prices “unsustainable” for about seven years now.) Mortgage Broker News just doesn’t see it happening in 2021.

After 2020’s feeding frenzy, we expect the overall number of sales to suffer this year, not because of a lack of demand but because of a lack of available inventory. Long-time single-family owners who refinanced at today’s lower rates are sitting quite pretty and may have even less reason to sell. The booms seen in cities like Fredericton, Regina, and Quebec City took a major bite out of some of Canada’s few well-stocked housing markets. Without any data modelling to rely on, we still see sales holding their own against historical averages, but coming up somewhat short compared to 2020, probably by about 2-4%.

We believe the national average home price will rise more than 10%, driven by demand for properties in smaller communities in Ontario, B.C., and Quebec, where prices have ample room to grow. Can Toronto put together another year of 10%-plus price growth? We wouldn’t bet against it. Too many people want to live there.

Here’s something to ponder for 2021. There has to come a time when prices in the GTA hit a ceiling that buyers – and, more importantly, lenders – will no longer be willing to reach. When the average price of a detached home in Toronto crosses the $2 million mark, townhouses cost $1.5 million, and semis sell for $1.3 million – which will all likely happen in what, six to eight years? – how many people will even be in a position to buy?




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