The Highs and Highs of the Canadian Real Estate Market to Continue in 2021?
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The real estate market did not expect much from 2020. After all, a pandemic was ravaging the world and the economies around the globe were buckling under in its wake. However, 2020 turned out to be a milestone year for the Canadian real estate market with one of the highest home sales in history. December, 2020 set new records, officially starting the new year with a strong sellers’ market.
Like the beginning of 2020, there is a section of experts who believe that the housing market will decline in 2021. Then, there is another group of experts who believe that the market will keep performing well in 2021 as well. These include Capital Economics’ expert Stephen Brown who points out in his piece “House prices to rise further in 2021” that the “prices will continue to rise”.
Let’s hear at the arguments on both sides.
The Two Sides
The pessimistic view is built on the basis of two assumptions.
It assumes that there will be a massive second wave of COVID19 infections that will hamper economic recovery. As a consequence of the sluggish recovery, homeowner will be unable to postpone mortgage payments, the supply side will loosen up, and prices will come down.
If the economy will pick up, the mortgage rates will go up. In that scenario, the housing market will become less attractive, which will again lead to a decline in prices.
The experts with an optimistic view of the housing market believe that the economy is already picking up, which makes it less likely that the home owners will default on their mortgage payments. Moreover, banks will keep the mortgage rates low to keep fuelling the economy, so the affordability will not be hit.
So, Who Has it Right?
It is important to understand that the market remains unpredictable at this juncture. However, some early signs may help in creating a plausible scenario for 2021.
The first assumption that the failure to defer mortgages will lead to a supply side push. But, the fall filings from the biggest banks in Canada show that only 70,000 mortgage accounts in the entire country are currently in deferral, a significantly lower number than the spring figures.
The second assumption about the increasing mortgage rates is also challenged by Bank of Canada’s announcement. The central bank has already committed that it will not be raising the key interest rate for another 2 years. So, till 2023 the primary rate of interest will not be marked up.
December was a particularly troubling month for COVID infections. However, it did not impact the housing market with cities like Montreal, Edmonton, and Ottawa showing a 32% year-on-year increase. Toronto broke all records with a 65% increase in the same period from last year, a time that is considered uneventful as far as home sales are concerned.
Expect a Sellers’ Market
With a tight supply side and high demand, the Canadian real estate market belongs to the sellers in the foreseeable future. The current trends don’t show any signs of a slowdown. It will be interesting to see if 2021 will be an even better year for Canadian real estate market.
