What a difference a year makes. Last May, the Canada Mortgage and Housing Corporation (CMHC) made an attention-grabbing, but plausible forecast that Canadian home prices could fall up to 18 percent over the next 12-month period as the pandemic wreaked havoc on the market.
The now former head of the CMHC, Evan Siddall, first made the comment to the House of Commons Finance Committee, warning the government that a nine to 18 percent drop to the national average home price was possible if the economy didn’t improve.
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Siddall and the housing agency caught a lot of flack for the alarming statement, as it generated considerable and mostly negative media coverage (even in countries very far away) and was criticized for potentially influencing buyer psychology to the point that it would become a self-fulfilling prophecy.
The agency went on to reiterate variations of the gloomy forecast for several months. Last July, it warned that home prices in major markets would fall and remain lower than pre-pandemic levels even by the end of 2022. The forecast was repeated even in September, well into the market’s tremendous recovery, during a media call with the agency’s chief economist.
To be fair, the CMHC wasn’t the only market commentator publishing pessimistic housing forecasts in 2020. Oxford Economics predicted a nine percent decline in home prices by early 2021, while Moody’s just last September said a seven percent drop was likely.
But, in case you haven’t been paying attention, none of this came to fruition and, in fact, prices rapidly soared to record-levels amid unprecedented buyer demand shaped by the pandemic’s impact. They continued to climb to new highs across the country in April.
Now, with the CMHC’s new forecast published this week in its Housing Market Outlook for spring 2021, the agency is understandably singing a different tune. For Canada’s resale housing market, its official forecast is a 10.7 percent to 14.4 percent home price increase compared to 2020’s national average home price.
In dollar terms, the agency expects the average home price to be $649,400 on the high end and $628,400 on the low end.
In line with the consensus among housing market commentators, CMHC believes the recovery that began in 2020 will continue through 2021, with the market remaining “elevated” while a gradual sales slowdown moderates the rate of price growth.
A resurgence in rental demand as immigration recovers and more stability in the pace of home building after a recent surge in activity were other noteworthy predictions contained in the Housing Market Outlook.
“COVID-19 has had unprecedented impacts on Canada’s urban centres. While large parts of the economy have struggled to adapt to pandemic conditions, housing activity has recovered reflecting pent-up demand, adjustment of working practices by many to pandemic conditions, and lower mortgage rates,” said CMHC Chief Economist Bob Dugan, in the outlook.
“Economic conditions are expected to return to pre-pandemic levels by the end of 2023, if broad immunity to COVID-19 takes hold by the end of 2021. This includes the pace of home sales and prices, which we expect to see moderate from 2020 highs over the same period. However, significant risks remain with respect to the path, timing and sustainability of the recovery,” he continued.