Long, bumpy road to recovery predicted for housing markets

Monday, June 29, 2020   /   by Sergey Korostensky

Long, bumpy road to recovery predicted for housing markets

Housing markets across Canada have taken a big hit from COVID-19 and according to a special report from Canada Mortgage and Housing Corporation (CMHC), a full recovery is going to take some time.


CMHC’s Housing Market Outlook — Special Edition predicts housing starts, sales and prices for the country’s six major markets will remain below pre-COVID-19 levels over its forecast period of 2020 through to 2022.


“COVID-19 has had unprecedented impacts on Canada’s urban centres. Short-term uncertainty will lead to severe declines in sales activity and in new construction,” says Aled ab Iorwerth, CMHC’s deputy chief economist. “As the virus is overcome, cities will bounce back but there is significant uncertainty with respect to the path and timing of the recovery.”


Numbers in the report range from worst-case to best-case scenarios.


“The HMO incorporates a wider range for housing indicators than we normally publish, reflecting the heightened risks and uncertainties of the current context,” says ab Iorwerth. “The upper bound of the forecast depicts a more optimistic scenario, while the lower bound shows a more significant and protracted downturn in the economy and housing market.”




Prices in the major markets are expected to fall this year, with different rates of recovery.


“Average prices in Toronto, Montreal and Ottawa are expected to rebound sooner and in the 2020 to 2021 period, while average prices in Vancouver, Edmonton and Calgary are not expected to see a rebound until later in the forecast period,” says CMHC. “Due to the uncertainties around oil prices and path of the regional economy, average home prices are expected to see declines in Calgary and Edmonton.”


Since they mentioned us, let’s focus on the Calgary census metropolitan area (CMA).


“While pandemic restrictions are in place, some of the key sources of population growth in the Calgary CMA will be slowed significantly,” says Taylor Pardy, senior analyst, CMHC economics. “Natural population growth and intra-provincial migration will likely remain net positive, but reduced immigration and interprovincial migration will result in a reduction in demand for new housing units, particularly in 2020.


“Prior to the pandemic, inventories of completed and unsold new homes were elevated, which may place additional downward pressure on new construction in the short term as builders look to sell off inventory before starting new projects. Looking forward to 2021 and 2022, the pace of new construction should improve gradually as pandemic restrictions ease, economic activity improves and population flows resume.”


Calgary is re-opening, but a return to stricter restrictions and a weaker energy sector would take the starts statistics to the lower bound, says Pardy.


“The unprecedented measures taken to address the COVID-19 pandemic will be reflected in a significantly slower pace of new construction in the Calgary CMA over the course of this year,” she says. “The global nature of the pandemic, restrictions to protect public health, and their impact on demand for oil and gas, will result in economic challenges in the near term.”


CMHC expects new homes construction to drop in the range of 43 percent to 64 percent in 2020, or to between 4,300 and 6,745 starts. In 2021, the range is 7,375 to 10,945 and 9,200 to 12,771 in 2022.


Calgary’s resale market in April was the worst in 36 years and while it bounced back some in May, CMHC expects the year-over-year decline to continue.


“Significant declines in employment and disposable household incomes will result in lower demand for existing homes this year,” says Pardy. “Despite favourable borrowing conditions, existing home sales are likely to decline 13 percent to 27 percent in 2020, as households adjust to a period of uncertainty. Similar to new construction, sales activity should gradually recover in 2021 and 2022 as employment conditions improve.”


Predicted sales range from 15,300 to 18,380 in 2020; between 15,130 and 19,965 in 2021 and; 17,680 to 22,130 in 2022.


As an aside, there were 1,079 MLS sales to the end of May in the City of Calgary, a more than 50 percent increase from April, but still 44 percent lower than May 2019. According to the Calgary Real Estate Board’s website, there were 1,363 sales between June 1 and June 23 in 2019, while sales in the same period this year hit 1,233 homes, a 10 percent year-over-year decline. In the week of June 17 to June 23 last year, there were 406 sales, while this year saw 426 sales during the same week, with 112 sales pending.


It is noted CMHC’s numbers are predicted as of the end of the year, but the comeback in the market to date is certainly encouraging.


Of course, the number most people want to know is the price.


“The MLS average home price should continue its previous downward trajectory and be 2.5 percent to 12 percent lower in 2020 as weaker economic conditions impact households’ budgets,” says Pardy. “In contrast with new construction and existing home sales, prices historically tend to take longer to adjust to changes in market conditions and thus there is a higher degree of uncertainty regarding the magnitude of the decline in the price forecast. Looking ahead, we anticipate that the MLS average home price will continue declining throughout most of the forecast horizon before stabilizing by the end of 2022 as economic conditions gradually improve.”


CMHC forecasts the average selling price in 2020 will be between $390,400 and $432,800; from $341,700 to $411,000 in 2021; and between $335,300 and $399,800 in 2022.


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