OTTAWA – Economic uncertainty stemming from government actions taken to contain the spread of the COVID-19 pandemic, falling oil prices and other factors will negatively impact this country’s housing market over the coming 24 months. In its latest Housing Market Outlook, the Canada Mortgage & Housing Corporation (CMHC) says housing starts, sales and prices are likely to say below their pre-pandemic levels well into 2022.
“Following large declines in 2020, housing starts, sales and prices are expected to start to recover by mid-2021 as pandemic containment measures are lifted and economic conditions gradually improve,” CMHC chief economist Bob Dugan said in a statement. “Sales and prices are likely to remain below their pre-COVID-19 levels by the end of our forecast horizon in 2022. The precise timing and speed of the recovery is highly uncertain because the virus’s future path is not yet known.”
This isn’t good for Canada’s furniture, mattress and major appliance (FMA) sector as housing remains one of the key drivers in its performance. Indeed, past studies conducted by organisations such the Canadian Real Estate Association (CREA) have suggested housing market activity accounts for between 30% and 35% of FMA sales in any given year.
In its report, CMHC notes the severe disruptions to the economy rising from the COVID-19 pandemic have placed unprecedented pressures on employment, incomes, migration and financial markets, while lower oil prices are likely to exacerbate declines in Canada’s oil-producing provinces. In recent months, for example, Canada’s unemployment rates (pegged at 13.7% in May) have risen to heights not seen in decades. Overall retail sales sank 10% in March while Canada’s gross domestic product (GDP) slid 2.7% for the first quarter of 2020.
Total housing starts – both single family homes and others – in 2019 numbered 197,000 units, essentially changed from 2018. Despite posting a 7% gain for the first quarter, CMHC believes they will decline to between 109,500 and 147,100 units this year, a fall of between 25% and 44% over last year.
In a note to Home Goods Online, CMHC communications specialist Angelina Ritacco noted the outlook covers a range of plausible scenarios and “incorporates a wider range for housing indicators than we normally publish, reflecting the heightened risks and uncertainties of the current context.
“The high end of the forecast depicts a more optimistic scenario while the low end shows a more significant and protracted downturn in the economy and housing market,” she continued, adding, “Our framework is based on key drivers of the housing market activity, including gross domestic product (GDP), trends in the labour market, demography, incomes and mortgage-lending conditions.”
Meanwhile, sales via CREA’s Multiple Listing Service (MLS) are expected to fall from the 488,828 units recorded in 2019 to somewhere between 450,500 to 416,000 units this year – a decline of between 7.8% and 14.9%. By the end of 2020, the average price will range from $518,400 to $493,000, which translates into a year-over-year decline of between 7.8% and 14.9% depending on whether the optimistic or pessimistic scenario comes true.
CMHC is of the opinion, prices should begin to recover in 2021 and return to their pre-pandemic levels by the end of 2022.
However, the regional disparities seen in the housing market in recent years will continue. This is especially true in the oil producing provinces of Alberta, Saskatchewan and Newfoundland & Labrador where housing prices could experience as much as a 25% decline from pre-pandemic levels.
“Restrictions on construction activity are leading to a sharp decline in housing starts,” CMHC’s outlook said. “Our forecast indicates that housing starts could decline by as much as 75% from the Q1 2020 level before starting to recover by the second half of 2021.
Click here to find and download the complete Housing Market Outlook published by CMHC.