Canada’s housing market has more firepower than some economists had imagined heading into 2021 and its performance through the first half of the year has Canada’s biggest bank reassessing its market outlook.
RBC Senior Economist Robert Hogue wrote this week that home sales activity will stay “historically strong” with prices continuing to climb in the coming months. The bank’s Economics team has now updated their 2021 country-wide home sales activity forecast to more than double their original growth forecast from January.
Instead of national home sales climbing 6.5 percent over 2020’s total this year, the bank now is forecasting an increase of 16 percent with sales hitting 636,700 units in 2021. In January, RBC Economists had predicted 588,300 sales for the year.
Hogue writes that the country’s housing market has calmed somewhat from the breakneck pace seen in 2021’s early months. But even as sales activity has slowed and an updated mortgage stress test takes some buyers out of the market, there’s still plenty of gas left in the tank to keep bidding wars fierce and price increases in the double digits.
Supply and demand conditions remain “super-tight” Hogue says, with inventory levels across the country still far from matching buyers’ insatiable demand.
“Without a major policy catalyst — like B.C.’s surprise foreign-buyer tax and Ontario’s Fair Housing Plan were in 2016 and 2017, respectively — other factors will drive the market rebalancing process,” Hogue writes.
Factors that will have a cooling effect in the long term include worsening housing affordability, a gradual return to office for many employees and interest rates climbing from rock-bottom levels seen through the pandemic.
Hogue believes that the so-called “soft landing” for Canada’s housing market is now an event that’s more likely to materialize in 2022. But many aspiring homebuyers will face a tough road ahead.
“Clearly, future buyers will face more intense affordability pressure across many parts of the country. Home ownership will become a more distant dream for an increasing number of Canadians. And a heavier debt load will come to those who will realize it,” he writes.