TORONTO, ON, December 14, 2020 – 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. According to the Royal LePage Market Survey Forecast, the aggregate[1] price of a home in Canada is set to rise 5.5 per cent year-over-year to $746,100 in 2021, with the median price of a two-storey detached house and condominium projected to increase 6.0 per cent and 2.25 per cent to $890,100 and $522,700, respectively.[2]
“The leading indicators we analyze are pointing 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 near to meeting surging demand. With policy makers all but promising record low, industry supportive interest rates to continue, we do not see this imbalance improving in the new year. The upward pressure on home prices will 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,” Soper continued. “We expect this trend to moderate as life returns to normal in the months ahead. It is also worth noting, that Canada welcomed a new generation of first-time homeowners this year, encouraged by lower financing costs and softer demand for city centre condominiums. Urban living remains attractive for many.”
The value of single-family houses and homes outside of major urban markets are forecast to continue to outpace city core condominiums in the year ahead, driven both by Canadians seeking larger homes in a time where remote work has become more commonplace, and broad-based demographic trends, including baby-boomer retirement.
“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,” said Soper. “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.”
Soper added that 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.
Immigration is critical to the housing market both indirectly, as it is supportive of economic growth, as well as directly through housing demand. In October, the federal government announced its plan to add more than 1.2 million immigrants over three years, a significant jump from previous years. Previously published Royal LePage research[3] into this demographic shows that newcomers to Canada typically rent for three years before purchasing, after which they have a material impact on new household formation and overall housing demand. An increase in immigration is supportive of both the resale market and investment demand for rental condominiums.
Nationally, the condominium segment is expected to see healthy demand in most of Canada’s largest cities. A notable exception is the Greater Toronto Area where a softer condominium market began emerging in the second half of 2020. Within the region, modest price gains for larger units outside of the city centre is expected to continue to offset softer demand in the downtown core. With the return of international university student rental demand and newly arrived immigrants in the second half of 2021, demand for centrally located units should increase.
The concern regarding the impact of potential mortgage defaults related to mortgage deferrals during the summer 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.[4]
“The first half of 2021 will be something of an economic and social tug-o-war between advancing medical science and surging housing demand,” concluded Soper. “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.”
Royal LePage 2021 Market Survey Forecast Price Table:
