Posted December 14, 2020

What’s next for Canada’s housing market after the first wave of the COVID-19 pandemic?

While the national housing market experienced an unprecedented drop in volume during the 2020 spring market, May 2020 housing stats already show some recovery underway.

“The big picture is things are moving in the right direction… but still have a long way to go. [But] prices appear to be holding firm at this point,” says Shaun Cathcart, Senior Economist with the Canadian Real Estate Association, in the industry organization’s May 2020 national statistics report .

Benjamin Tal, managing director and deputy chief economist at CIBC World Markets, says the real estate market is in no jeopardy of seismic change. While housing activity may have dropped 70 percent compared to one year ago, “The damage to the real estate market is not as significant as perceived,” said Tal in a Canadian Real Estate Forums webinar . Tal expects the economy to recover between 2022 and 2023, adding “the demand for real estate will remain very strong.”

We spoke with Paul Taylor, President and CEO of Mortgage Professionals Canada to get a mortgage expert’s take on the two major factors that will affect Canadian real estate values in the mid-to-longer term.

Employment

“If employment is strong house price growth tends to be strong also, but when employment numbers fall, you start to see higher levels of mortgage default, or people choosing to sell their home before they have to miss that payment. This can add supply to the market which can make house prices a little bit softer,” says Taylor.

The billion dollar question is, what will Canada’s employment and jobless rates look like in Q3 and Q4 2020? At last official count (June 2, 2020), unemployment hit 13.7% (the highest jobless rate in four decades), however, employment has been rebounding , with 289,600 positions returning in May after March and April’s waves of job losses.

While some sectors are returning to business others will be contending with longer term issues, notably Alberta’s oil industry, which was experiencing a downturn prior to COVID-19. Other sectors Taylor expects to “suffer a bit,” through 2020? Tourism and hospitality and manufacturing (less employment means less discretionary spending).

Keep an eye on employment statistics, as they are an indicator of what could be coming down the line.

Emergency Relief Programs

Canada’s government responded to the COVID-19 pandemic with programs aimed at keeping Canadians secure in their homes during the shutdown. The federal response included temporary programs such as the Canada Emergency Response Benefit (CERB) and increases to the Canada Child Benefit, a wage top-up for low-income essential service workers, and a special GST tax credit payment.

Banks and other mortgage lenders offered up to six months of mortgage payment deferrals , allowing homeowners to put a pause on mortgage payments, with the skipped payments and accrued interest added to the loan’s outstanding principal.

What happens next remains to be seen, says Taylor: “There’s a number of folks that have had their employment significantly impacted by COVID. So, the big question is how close to a full-capacity economy can we get to by September when the mortgage deferral programs expire? If the deferrals expire and a number of people find they have to sell their home because they have still not managed to get back to full income levels, we’ll see a slowdown.”

Bottom Line

Keep an eye on the fall. September onwards will reveal where employment is headed, as well as the impact of removing – or potentially extending – income and mortgage relief programs.

Canadians with questions about mortgage options (including mortgage payment deferrals or mortgage refinancing) should speak to a mortgage professional for personalized advice tailored to their situation.

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