CMHC expects weaker market activity following 2021 peak

The recent report by Canada Mortgage & Housing Corp. (CMHC) says market activity will moderate from today’s extremely high levels. However, home sales will still be elevated, and prices will keep rising for years.

According to CMHC, the number of home sales may rise from the previous year’s 550,000 to 602,300, leading to a 14% annual prices increase to $649,400.

The pandemic-caused strong demand for larger properties combined with low interest rates have led the national real estate market to incredible heights during the previous year, with annual price growth exceeding 30% in certain areas. As we can see a higher pace of vaccine distribution and a faster-than-expected economic recovery, some of the drivers of a strong activity may start weakening.

“We believe the economic conditions will return to pre-pandemic levels by the end of 2023, in case broad immunity to COVID-19 is achieved by the end of 2021,” – Bob Dugan, CMHC’s chief economist, noted. “This includes the pace of housing sales and prices increase, which are expected to moderate from 2020 high levels.”

In CMHC’s opinion, faster economic growth will lead to a rise in a standard five-year mortgage rate, although it will still remain very low from historical point of view. Unusually high savings (caused by less opportunity for spending) will probably go down.

Due to stronger demand for single-family houses, developers and construction companies will focus more on this category. Meanwhile, renewed immigration will bring back the demand for rental units in the cities, where we’ve seen higher vacancy rates and lower rents.

As a result, CMHC expects home sales across the country in 2022 and 2023 to be lower than this year, although higher than in case of 2019.

Prices will probably continue to grow, CMHC says, with the average price reaching $704,900 by the end of 2023.