A surprisingly strong showing from the Canadian housing market in June is leading economists to swiftly revise their forecasts as homebuyers returned to the market in larger than anticipated numbers.
June market data published last week by the Canadian Real Estate Association (CREA) showed country-wide home sales up 63 percent over May and more than 15 percent compared to the same period last year. Home price growth also came roaring back, almost completely erasing the losses suffered through the worst months of the COVID-19 pandemic.
The performance was so strong it led Capital Economics’ Stephen Brown to revise his home price forecast upward to 3 percent in 2021 and 5 percent in 2022. By the end of 2022, he now predicts that prices will have risen by 8 percent from their current levels.
In a research brief published late last week, Brown wrote that the June figures had “made a mockery of the near-unanimous view among economists that [Canadian] house prices would fall this year.”
Indeed, economists projecting varying degrees of home price declines were a staple of media reporting on the pandemic’s housing market impacts since the crisis began. Oxford Economics predicted a nine percent fall by early 2021 just a month ago. Earlier on, RBC forecast a seven percent decline by mid-2021, while National Bank of Canada pegged the drop to be close to 10 percent.
Even Capital Economics itself had, less than two months ago, predicted that average Canadian home prices would bottom out at 10 percent below their pre-pandemic levels while the less volatile Teranet Home Price Index would see a 5 percent drop.
After the CREA June data was released, Brown didn’t mince words when it came to the accuracy of those forecasts.
“Either way, nearly everyone was wrong, as prices have moved in the opposite direction,” he said.
Brown pointed to both substantial rises in average selling prices and a 0.5 percent increase in the MLS Home Price Index, which is a more reliable measure of home price movement over time.
Considering the unanticipated strength of the market so soon after it suffered some of the worst drops in sales activity ever recorded, Capital Economics revised its outlook for Canadian home prices in the coming years.
Brown wrote that the firm now believes prices will be more or less unchanged through the remainder of the year and begin trending upward by 2021, propelled by a recovering economy and low interest rates.
Despite this clear, rapid improvement in the market’s fortunes, the economist still included a measure of caution in the new forecast. There are still a considerable number of Canadians currently deferring their mortgage payments who may be forced to sell their homes when the deferral programs wind down in September.
He also flagged the precipitous pandemic-induced decline in immigration — the fundamental driver of population growth — as a key challenge on the horizon for the market.
