Real estate to stay hot through 2021, CMHC says
Agency wrestling with its medium-term outlook because people may shift back to cities
Canada Mortgage and Housing Corp. says historic household savings, low mortgage rates and pent-up demand are fuelling a soaring pandemic-housing market in Toronto and other major cities — with the trend expected to continue through 2021.
But CMHC also cautioned on Thursday also cautioned that there are still forces that could bring the market back down to earth.
Deputy chief economist Aled ab Iorwerth cited “major risks” including employment levels that have yet to return to pre-pandemic thresholds and the eventual withdrawal of government financial supports.
As CMHC prepares its updated April forecast, he said the agency is wrestling with a medium-term outlook because it remains unclear about what happens when people who have moved further from the downtown are potentially faced with commuting again.
“We’ve seen quite a shift towards suburban (housing) markets, detached homes, to rural communities. The question we’re debating is whether this will persist. Has it gone too far? Will there be a shift back to the city centre?” said ab Iorwerth.
CMHC’s Housing Market Insight Report tracking the pandemic’s impact on real estate shows more expensive homes are outselling modestly priced houses and condos. High unemployment among lower-income workers, coupled with fewer immigrants, has diminished demand for more moderately priced houses in cities, it said.
In Toronto, that translates into a growing price gap between detached houses and semi-detached properties and, in some cases, dozens of competing offers are driving up house prices at a rate that is beginning to worry some realtors.
The number of homes that sold in Toronto in the $1-million-to-$1.25-million price range rose from 8.8 per cent to 12.1 per cent between March and October. In the same period, sales of those priced between $500,000 and $600,000 declined from 14.4 per cent of sales to 12.2, with a similar drop in homes in the $600,000 to $700,000 range, according to CMHC’s report.
Meantime, average household savings rates rose from two per cent at the end of 2019 to 27.5 per cent in the second quarter of 2020.
The report comes a day after Bank of Canada governor Tiff Macklem suggested there were signs of “excess exuberance” in real estate, with people buying homes based on the belief that prices will continue to rise. But he said the market is not yet at the level of frenzy Toronto saw five years ago before governments stepped in with cooling policy measures.
Christopher Alexander, Re/ Max Ontario-Atlantic region’s chief strategy officer, said it’s difficult to gauge how far off that fever the Toronto market sits — a lot of people aren’t listing their homes simply because they don’t want to host showings during the pandemic.
“There’s serious buyer fatigue out there for sure. But easing restrictions and vaccinations start to kick in soon, I think people will feel more comfortable,” he said.
Governments which might be looking at ways to douse the flames should wait to see if more listings come online in the spring to help quell some of the competition in the market, said Alexander.
Desmond Brown of Re/Max Hallmark Realty says he “absolutely” has concerns about the possibility that some home buyers may be overextending themselves: “There could be a bubble — probably more on the outskirts than we’re going to see in the city of Toronto. It’s definitely something to be concerned about,” he said.
He points to two homes on Sorauren Ave. in the west end listed for $999,999. Both sold recently for more than $1.6 million. A Parkdale home on Beaty Ave. in exceedingly poor condition, also priced at $999,999, was bought for $1.56 million. At least two of those homes will need hundreds of thousands of dollars in renovations, in addition to the purchase price, said Brown.
“The Bank of Canada is still keeping the interest rates low. But what it’s doing is just driving up prices,” he said.
Thursday’s CMHC report acknowledged how wrong its housing forecast was last June, when it predicted economic uncertainty would cause consumers to delay purchase decisions. It expected the average Toronto home price would be between $735,421 to $831,075 in the second quarter of this year.