The current furious pace of homebuyer activity, along with rapidly accelerating price increases seen since mid-2020, are unlikely to last into 2022.
While the Canadian housing market’s strength was a major contributor to the country’s economic recovery following the devastation experienced last spring, TD Senior Economist Sri Thanabalasingam believes a “significant cooldown” is coming over the next six to nine months.
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In commentary exploring Canada’s “pandemic economy” after a year spent coping with the myriad effects of COVID-19, Thanabalasingam writes that the initial fears at the onset of the pandemic around the country’s housing market were focused on risks of collapse rather than of overheating.
But while they generated some alarming headlines based on inaccurate predictions, fears of collapse quickly faded through the summer as homebuyers took the market by storm.
“Rock-bottom mortgage rates, relatively secure employment for higher paid workers, and a desire for more space while working from home, generated extraordinary homeownership demand beginning in the summer of 2020 and has yet to fade,” writes Thanabalasingam.
Now concerns around overheating have taken over, as single-family home prices at the national level have gained $100,000 in value on average just over the last six months amid historic demand and limited supply. Market experts are now penning what essentially amounts to open letters to policymakers on actions they can take to cool the market.
Thanabalasingam believes that some segments of the market “have moved well above their levels supported by [economic] fundamentals.” Mortgage rate increases and a lack of affordable housing options for many buyers should lead to a “tapering off of price growth,” he writes.
If this doesn’t take enough steam out of the market, the economist predicts that regulators and governments will spring into action on the policy front with measures to protect the financial system from a runaway housing market.
“Either way, we are likely to see a significant cooldown over the next 2-3 quarters,” writes Thanabalasingam.
Earlier this month, RBC Senior Economist Robert Hogue recommended an array of policies to stabilize the market that included increasing the supply of housing through new home and rental construction, rolling out measures aimed at discouraging speculation and potentially tightening up mortgage-lending rules even beyond what was enacted by the federal government in 2018.