CMHC expects lower demand for housing as economy takes COVID-19 hit

Significant employment and income declines, coupled with uncertainty over the future trajectory of the virus and employment and income conditions, will lower demand for housing in 2020. The Housing Market Outlook — Special Edition (HMO) released on June 23, 2020 by Canada Mortgage and Housing Corporation (CMHC) forecasts housing starts, sales and prices for Canada’s major housing markets are likely to remain below their pre-COVID-19 levels over the forecast period. The precise timing and speed of the recovery in major markets is highly uncertain and will vary considerably.

Building on the release of CMHC’s HMO on May 27, 2020, which provided housing forecasts for Canada and the Provinces, this report provides projections for housing activity in Canada’s largest urban centres until the end of 2022: Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal. A backgrounder with full details for each market is at the end of this release.

“COVD-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,” said 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.”

Key findings:

  • Necessary health measures and economic contraction will lower demand in the housing market. These effects will be exacerbated by uncertainty about the trajectory of the virus and over the economic fallout. House prices in Canada’s major centres will fall as a result, and are unlikely to recover over the horizon of this report.
  • Sales and construction have dropped and will continue to drop across Canada’s major markets. Resale activity and average house prices will fall across all markets but the rate and magnitude of declines of both will vary.
  • Average prices in Toronto, Montreal and Ottawa are expected to rebound sooner and in the 2020 – 2021 period, while average prices in Vancouver, Edmonton and Calgary are not expected to see a rebound until later in the forecast period.
  • 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.
  • Lower immigration and less mobility within Canada, coupled with a surplus of buildings under construction could lead to vacancy rates increasing in the rental market. However, these increases will be in markets with historically low vacancy rates and are likely to be short-lived as demand for rental continues to grow in the medium term.

Understanding the forecast:

This outlook covers a range of plausible scenarios. The HMO — Special Edition incorporates a wider range for housing indicators than CHMC will normally publish, reflecting the heightened risks and uncertainties of the current context. 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. The framework is based on key drivers of the housing market activity, including gross domestic product (GDP), trends in the labour market, demography, incomes and mortgage-lending conditions.

Source: CMHC