House prices in many major Canadian markets are soaring, but Canada Housing and Mortgage Corporation (CMHC) says major risks related to the COVID-19 pandemic remain.
“In particular, employment conditions remain below pre-COVID levels while the high level of supportive government income measures are temporary in nature,” said CMHC senior economist Gustavo Durango and deputy chief economist Aled ab Iorwerth in the report focused on Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal average home prices and sales.
“Full and sustained recovery continues to depend on the uncertain course of the pandemic.”
Along with pent-up demand, CMHC says low rates have helped drive the frenzy.
“Housing demand during the pandemic has also likely been supported by the accommodative stance of monetary policy, which allowed the five-year fixed mortgage rate to decline,”
“The commitment to keep rates low would have strengthened expectations that rates would remain low over the course of the pandemic, which in turn would have likely strengthened expectations that house prices would also be sustained,” said Durango and ab Iorwerth.
Lower income earners have been hit the hardest with job losses during COVID-19. CMHC says housing market strength shows the uneven impacts of the pandemic as higher priced-detached homes lead the way for sales and price appreciation.
“Despite increased government transfers to these households, their exposure to negative employment effects meant they were less likely to purchase a home during the pandemic than other households,” said said Durango and ab Iorwerth
“Fewer new immigrants would compound this effect, further lowering demand for less-expensive housing.”
Savings rates are up sharply during the pandemic started, going from 2 per cent in the fourth quarter of 2019 to 27.5 per cent. CMHC says this has also been a factor.
“Higher savings would likely have provided some households with increased means and confidence to fund home purchases,” said Durango and ab Iorwerth.
The National sales-to-new listings ratio tightened to 90.7 per cent – the highest level on record, but CMHC says the supply and demand equation was different in the spring.
“Early in the pandemic, sales fell faster than new listings in Vancouver, Toronto, Ottawa and Montreal. This changed in the third quarter, as strong growth in new listings was outpaced by stronger growth in sales,” said Durango and ab Iorwerth.
In May CMHC forecast a decline in average house prices of 9 – 18 per cent in the coming 12 months. It acknowledged the housing market’s strength exceeded its expectations in large part because higher-income workers quickly adjusted to working from home.
“Their rapid recovery meant that their pent-up demand was quickly transmitted to the resale market by the third quarter of 2020.
“This was underpinned by households expecting that mortgage rates will remain low over the course of the pandemic.”
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.