A new report predicts home prices across Canada will drop in 2021, as high unemployment and lower incomes due to the COVID-19 pandemic keep buyers from returning to the market.
Moody’s Analytics says the average price of a single detached home in Canada will fall by 6.7 per cent next year.
While stimulus measures, mortgage deferrals and low interest rates have kept the country’s real estate market buoyant, the decline is inevitable, according to the study’s author.
“Not even lower interest rates will be enough to save the housing market,” said Abhilasha Singh with Moody’s Analytics.
“Housing affordability is still a big issue in Vancouver and Toronto, but the COVID-19 pandemic and economic turmoil will draw more attention to it in the near term,” she said.
The report also says the disruption of migration to Canada will reduce demand for rental units.
CMHC echoes forecast
On Monday, the Canadian Mortgage and Housing Corporation said it, too, expected a decline in home sales and new construction as personal debt increases and the economy is impacted by the pandemic.
The CMHC says there was a “moderate degree of vulnerability” in the national housing market at the end of June.
The rating is part of the agency’s housing market analysis, which factors in price acceleration, overvaluation and overbuilding and adds other risks in the market due to the COVID-19 pandemic.
Demand for work from home space
The pandemic, however, has boosted demand for properties outside of larger urban cores that offer more space for people to work from home, Moody’s said.
“Smaller markets where such properties are more affordable will particularly benefit from this trend,” said Singh.
Overall, Moody’s predicts housing prices will begin a meaningful recovery in early 2022.
“While demand for single-family homes with ample space and large pantries may rise, so too might demand for smaller apartments and condos given the struggle many families will face in saving for a down payment,” said Singh.