What are the odds of a housing market crash in Canada?

In spite of the worries over red-hot activity, according to a recent report by Oxford Economics, Canadian housing crash is quite unlikely, unless we face a sharp mortgage rates increase or a significant tightening of housing policy.

The report co-authors Tony Stillo and Michael Davenport say a housing bubble could appear because of a pandemic-caused change in buyers’ preferences, restrained supply, and record-low mortgage rates, but this is not sustainable. Moreover, the report shows that Canada’s real estate market’s potential trajectory is a gradual cooling,

“Later, we expect housing to reflect slowing demographic fundamentals due to an aging population that will face slower growth,” – they noted. “House price growth will probably slow to below the pace of household income growth for the rest of the decade. We believe the real estate prices will remain within household borrowing capacity even despite a forecast of growing mortgage rates.”

According to Oxford Economics, Canada’s senior population will almost double to about 12 million during the next 30 years. As a result, the elderly’s share of the Canadian population will grow from one in five in 2020, to one in four by 2050.

In addition to it, a slowing trend in the number of new households will cool the market in the long term.

“By 2050, the average private household will consist of 2.36 occupants, while the number is 2.43 occupants now,” – Stillo and Davenport said. “That’s why we believe the rate of new household formation will slow down from its recent 200,000 annual pace to 130,000 new households in 2050.”