Home resales in Canada are slated to jump 16% to 636,700 in 2021, says RBC Economics—up from its initial forecast of 588,300 back in January—before softening to 505,300 in 2022.
The bank, which updated its projection in a June 8 policy report from senior economist Robert Hogue, also increased its home price forecast to 14.1%, bringing its revised 2021 benchmark to $707,000. However, RBC expects both sales pace and price growth to begin moderating later this year and into 2022, when it anticipates housing appreciation will climb by only 2.9%.
Despite housing appreciation tapering, Hogue’s report doesn’t foresee any issues arising for existing homeowners, however, the same cannot be said for first-time homebuyers, whom he sees having even greater barriers of entry into Canada’s housing market. During the COVID-19 pandemic, mortgage payments on a standard home in the country, pegged at $724,000 in April, have risen by $330 to $2,500 a month, and with a projected 4.2% increase over the next year, mortgage payments would increase another $150 per month. Not only are mortgage payments going up, so are down payments, and the accompanying debt burden is turning homeownership into what Hogue called “a more distant dream for an increasing number of Canadians.”
Resulting from Canada’s runaway housing prices are policymakers’ intervention and nascent signs of self-correction in the market, but neither has been particularly impactful. Although major policy change could be the impetus needed to cool prices—Hogue recounts the foreign buyer taxes introduced in British Columbia and Ontario, implemented in 2016 and 2017, respectively—a confection of other factors, namely long-term rate hikes, dwindling affordability, more mortgage stress testing, and workers returning to their offices, will most likely have cooling effects. Additionally, surging home equity could also compel Canadians to sell their homes.
Still, as long as supply and demand disequilibrium exists, prices will keep rising. The B-20 mortgage stress test amendment, which took effect June 1, will not subdue housing demand the way it did in January 2018, the last time it was modified, says Hogue. Other minor policy moves, like increasing the supply of rental housing, could create much needed housing, but the federal government, while spearheading the initiative, provided scant details about how that would happen.
It is widely parroted by real estate professionals that the length of time it takes to deliver housing is the real culprit, and if there’s truth to such a supposition—the evidence is overwhelming—then the federal government’s laissez-faire approach to municipalities’ slow planning, zoning and approvals processes does not bode well for housing affordability in Canada.