There’s No Shaking Canadians’ Faith In Real Estate

Written by Posted On Tuesday, 19 January 2021 00:00

If a global pandemic isn’t enough to rattle Canada’s housing market, what is?

“Just when the second wave of the pandemic reached new troubling heights, many of Canada’s housing markets recorded their strongest December ever,” says Robert Hogue, senior economist at RBC economics. “The year just ended will easily go down as the most surprising in the history of Canada’s housing market.”

Since its quick recovery from the economic crisis in 2008, the real estate market in Canada continued on a steady upward climb for both sales and prices. Federal and provincial governments have tried to slow the pace by instituting strict mortgage qualification rules and foreign buyer taxes, but to no avail.

“The worst global pandemic in generations clearly couldn’t stop (or just did briefly) Canadians’ desire to own a home. In fact, rock-bottom interest rates, high household savings and changing housing needs turned up the heat even more,” says Hogue.

Sales in Toronto were up 65 per cent compared to a year ago. They were up by 53 per cent in Vancouver, 40 per cent in Calgary and 32 per cent in Edmonton, Montreal and Ottawa.

Can the booming real estate market continue?  Consumers certainly think so. A weekly tracking of “Canada’s economic mood” by Bloomberg and Nanos says that “views that the value of real estate will increase have hit the highest levels since Nanos tracking began in 2008,” says Nic Nanos, chief data scientist for Nanos.

Re/Max commissioned another study by Leger, which found that 53 per cent of Canadians believe housing markets will remain steady in 2021 and 52 per cent think that real estate will remain one of the best investment options this year.

An RBC study says that although 78 per cent of consumers are worried about the impact of COVID-19 on the overall economy, just 43 per cent were worried about a negative impact on the real estate market. And only 19 per cent say the pandemic has weakened competition between buyers in the real estate market, says RBC.

Eighty per cent of those surveyed say home ownership is a good investment and 52 per cent think home values “will only go up” in the immediate future.

Most people in the real estate community also believe the market will continue to grow. The Canadian Real Estate Association is forecasting sales to rise by 7.2 per cent in 2021. Re/Max says that “an ongoing housing supply shortage is likely to continue, presenting challenges for homebuyers and putting upward pressure on prices.” It predicts a four to six per cent increase in the average residential sale price in Canada.

Royal LePage president and CEO Phil Soper also points to the shortage of listings and says, “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.”

“We’ve seen a lot of anecdotal evidence since the summer that households are considering significant lifestyle changes by relocating to less-dense cities and neighbourhoods,” says Christopher Alexander, EVP and regional director at Re/Max Ontario-Atlantic Canada. “This has sparked unprecedented sales in the average residential sales price nationwide.”

The RBC survey found that about one-third of Canadians say they are willing to help their child or immediate family member purchase a home. They are willing to give an average of $60,513 and only about half expect to be paid back.

In a series of Twitter posts, John Pasalis, president of Realosophy Realty in Toronto and a well-known housing analyst, said, “I’m just trying to unpack the psychology that drives housing bubbles in general and the current exuberance in particular.

“When buyers see home prices rising by 20-plus-per-cent per year, which is the trend in the suburbs, it leads to a belief that if they don’t buy a home now, they’ll never be able to afford one. If they don’t buy the $900,000 house they are bidding on today, in six months that same house will be worth $1 million. So it doesn’t matter if they overpay by $100,000 now because they would just be losing six months appreciation – it will keep going up after that. That’s how some buyers think.”

But Pasalis says the housing market is “incredibly hard to predict. It could fizzle out in a few months due to buyer fatigue. If enough buyers get frustrated and decide to ‘take a break’ this could take some heat out of the market.

“But it could also accelerate for some time. Especially with money being given away and policy makers not showing any concern about these trends – it’s hard to say what’s going to stop this runaway train.”

Despite his concerns, he is personally still looking at buying a property. But he says he will “buy defensively and for the long term. The one thing I’ll never do is compete with 70 other buyers and pay 17 per cent more than the most recent comparable sale. And neither should you,” Pasalis says.

“If you are a buyer, you need to proceed cautiously. This market could turn on a dime and if you end up significantly overpaying you could find yourself in a jam if your bank doesn’t appraise the house for the price you paid for it. Be careful.”

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Jim Adair

Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at jim@remonline.com.

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