Unemployment, immigration puts restraint on housing
BENGALURU — Canadian house prices will rise at a much slower pace this year than predicted only three months ago and will fall in 2021 as the coronavirus pandemic pushes up unemployment, curtailing immigration and the demand for homes, a Reuters poll shows.
Lockdown restrictions to stop the spread of the virus, which has infected more than 100,000 people in Canada, have disrupted supply chains in the resource-heavy economy.
Despite aggressive interest rate cuts from the Bank of Canada and emergency government spending, including help to furlough workers during lockdown, the economy is in its deepest recession on record.
While Canadian home prices rose 0.1 per cent in the month of May, yielding the strongest annual gain in two years, the June 9-23 poll of 17 economists and housing market analysts showed average house prices across the country would rise just 1.5 per cent this year compared with the 4.5 per cent forecast in a March poll.
Buyers fearful for their economic future are less likely to make big-ticket purchases, pressuring sellers to lower prices. Unemployment hit a record high of 13.7 per cent in May and may rise more as businesses plan their future.
“Hopefully unemployment will be low enough when most financial bridges and mortgage deferrals end,” said Sebastien Lavoie in Montreal, chief economist at Laurentian Bank Securities, who expects that two-thirds of those currently jobless will be called back to work by the end of this year.
“A small but not negligible share of job losses recently will end up in long-term unemployment. Also, COVID19 anxiety weighs down on labour market prospects, delaying housing purchases. A key risk specific for Canada is tied to the achievement of the federal immigration targets, which underpinned housing demand in recent years.”
In a worst-case scenario, Canadian house prices were forecast to tumble 8 per cent this year, according to the poll.
Next year, national house prices are forecast to fall 1.2 per cent, compared with a 3.5 per cent rise predicted in March.
Demand for housing this year is expected to fall across the country, including in Toronto and Vancouver, said more than three-quarters of respondents.
In Toronto, Canada’s financial capital and largest city, house prices were expected to rise 3 per cent this year compared with 6.4 per cent predicted three months ago.
In 2021, forecasts pointed to a fall of 3.1 per cent versus a rise of 5 per cent three months ago.
Vancouver house prices were expected to decline 1.8 per cent this year compared with a 2.4 per cent rise predicted in the last survey.
Asked how quickly Canadian housing market activity would recover to pre-COVID-19 levels, 12 of 17 analysts said it would be gradual. Three said it would be slow and long while the remaining two said activity had already recovered.
High employment was the biggest hurdle for the market over the coming year for most respondents, followed by low immigration, household debt levels, the lack of affordable housing and more stringent mortgage conditions.
“Employment … will be influenced by our domestic handling of the pandemic, the quality of economic recovery among our key trading partners, and re-opening our borders to countries that are our primary sources of tourists and international students,” said David Stroud, CEO at property advisory firm Mortgage Sandbox in Vancouver.