Back in April 2020, Covid-19 was taking root in our country and was beginning to affect, as well as, tragically, take many lives. At that time, it was expected that the housing market for re-sales in 2020 would continue to grow, with prices appreciating at, or around, 4-6% annually. The fly in the ointment at the time that forecast was rendered was the uncertainty, and thus the inability to confidently account for the Covid-19 effect. Having the advantage of hindsight and being able to analyze the previous months’ data, we are now at least able to explain what has unfolded throughout most of 2020, and to look ahead to 2021.

Statistics recently released by the Canadian Real Estate Association (CREA) show national home sales continued running at historically strong levels through October 2020. Actual (not seasonally adjusted) sales activity posted a 32.1% y-o-y gain in October. It was a new record for that month by a margin of more than 14,000 transactions. For the fourth straight month, sales activity was up in almost all Canadian housing markets compared to the same month in 2019. Many Canadian housing markets continue to see historically strong levels of activity – over and above what would have been required to make up for the very quiet spring market this year (CREA).

“For anyone waiting for the Canadian home market to begin to settle down following this past summer’s surprisingly strong recovery, they’re going to have to wait a little longer. It was evident that the same trends we’ve been seeing since July – record sales and record prices amid tight overall supply – was once again the story in October,” said Shaun Cathcart, CREA’s Senior Economist. “As we’ve moved through the last few months of headline-grabbing data, we’ve seen sales activity for the year-to-date not just catch up with last year, which was surprising enough, but at this point, activity in 2020 has a real shot at setting an annual record.”

Many reasons have been suggested for why this is when many traditional drivers of the market; economic growth, employment and confidence in particular, are currently so weak. Something worth considering is how many households are choosing to pull up stakes and move as a result of COVID-19 and all the associated changes to our lives. We could be seeing a lot of moves, or churn in the market, that would not have happened in a non-COVID world.

Housing demand exceeded expectations in the second half of 2020. The supply of homes available for sale failed to keep pace, driving home prices higher and pushing unmet buyer demand into the new year See EXHIBIT 1 for a summary of market conditions and their consequent implications for sellers and buyers. According to the Royal LePage Market Survey Forecast, the aggregate price of a home in Canada is set to rise 5.5% year-over-year to $746,100 in 2021, with the median price of a two-storey detached house projected to increase 6.0 per cent to $890,100.

 

Buyer’s Market:
The supply of homes on the market exceeds demand.

Seller’s Market:
The number of buyers seeking homes exceeds the supply or number of homes on the market.

Balanced Market:
The number of homes on the market is equal to the demand or number of buyers seeking homes.

High inventory of homes. Few buyers compared to availability. Homes on the market for longer period. Prices tend to adjust downward.

Smaller inventory of homes. Many buyers. Homes sell quickly. Prices usually tend to increase.

Demand equals supply. Sellers accept reasonable offers. Homes sell within an acceptable period of time. Prices generally stable.

More time to look for a home. More negotiating leverage for the buyer.

May have to pay more. Make decisions quickly. Conditional offers may be rejected; e.g. sale of property, finance, inspection.

More relaxed atmosphere. Reasonable number of homes to choose from.

*The Real Estate Market is fluid and changes periodically, sometimes cyclically, sometimes seasonally. It is helpful to understand how market conditions can affect one’s position as a seller or buyer.

“The leading indicators analyzed, point to a market that favours property sellers in the all-important spring of 2021,” said Phil Soper, president and CEO, Royal LePage. Across the country, a large number of hopeful buyers, intent on improving their housing situation were not able to find the home they were looking for this year, as the inventory of properties for sale came nowhere close to meeting the surging demand. With policy makers all but promising record lows, industry supportive interest rates to continue, we do not see this imbalance improving in the new year. The upward pressure on home prices will very likely continue. There was a clear shift towards larger properties and single-family dwellings in 2020, as families repurposed homes to become their office, school classroom, gymnasium and restaurant during the pandemic. The trend is expected to moderate as life returns to normal in the months ahead.

Mega-trends that predate the pandemic are pushing home prices higher in secondary markets outside of our largest cities. Corporate Canada’s pandemic-driven move to work-from-home operations has simply accelerated relocation patterns already underway. The huge baby-boomer demographic began post-children migration to suburban and recreational-style communities in the middle of the last decade, and material numbers of the equally populous millennial generation have been exiting city centre condos in search of space as they began families. The trend of high demand outside of urban centres will slowly ease as listings in city centres become more competitive against growing prices in suburban and exurban markets.

The concern regarding the impact of potential mortgage defaults related to mortgage deferrals during the summer of 2020 has eased significantly, as many Canadians who deferred payments have begun repayment. According to CMHC, as of September 30, 2020, the organization’s entire insured book of business has 5 per cent of loans with a payment deferral in place; a decline from approximately 8 per cent in August.
The first half of 2021 will be something of an economic and social tug-o-war between advancing medical science and surging housing demand. The real estate brokerage industry has developed protocols that allow us to safely sell property during the pandemic, yet some would-be sellers will remain cautious and not list their properties while high levels of COVID-19 transmission remain the norm, restricting available housing supply.