Many Canadians predict further home prices growth

The recent weekly poll by Nanos Research Group shows that a record number of Canadians believe housing prices will keep reaching new highs, increasing concerns that the real estate market is entering a speculative bubble.

According to the survey results, 6 out of 10 Canadians expect the cost of real estate in their neighborhood to go up during the next six months. It’s the first time the number reached 60% since polling started back in 2008. It points to how strongly the current home prices growth supports expectations for more hikes.

The problem is that such extrapolative forecasts will attract the undesirable type of demand coming from speculators or investors who are afraid to miss a good opportunity. This will hyper-inflate the housing market, deteriorate affordability for young families, increase an already growing mortgage debt and strengthen the risks of a potential market crash.

“Such a fear of missing out is leading people to decisions they’ll have to live with,” – Robert Hogue, an economist at RBC, says.

However, not only this survey’s results bring worries over the housing market:

• According to Statistics Canada, last month, prices for new properties showed the fastest growth in more than 30 years.
• A separate home-price index from the CREA shows the national prices rose by 17% during the previous 12 months.
• Almost one quarter of Canada’s main markets reported price increases of more than 30%.

And there are simple reasons for such gains. First of all, mortgage rates fell to their lowest level, reducing the borrowing costs.

A work-from-home trend during the pandemic has also increased the demand for single-family houses, especially in suburbs and smaller towns. Meanwhile, the supply has remained restrained, pushing prices higher.

And it doesn’t seem like Canadians are going to stop in the nearest future. The Nanos survey shows that the number of respondents who expect the cost of real estate to go up rose from only 9% reported last May.

In addition to it, the government also doesn’t show any signs of acting in order to slow the trends. The housing market activity is the main driver of new wealth amid strong uncertainty, and policy makers are not eager to step in. Moreover, we can also see a political constraint, as Prime Minister Justin Trudeau’s government is thinking whether to trigger an election this year.

“In my opinion, they have to at least admit they are worried, and they are considering certain variants on cooling down the real estate market”, – noted Hogue.