Canada is in the midst of a federal election campaign, and although housing is an issue everyone is talking about, none of the election promises will have an immediate impact on the real estate market. The consensus of housing observers is that sales will slow somewhat through the end of 2021 and into next year, but prices are unlikely to drop.

After record-setting and unsustainable real estate sales in the spring, the country saw four consecutive months of slower sales. But Shaun Cathcart, director and senior economist for the Canadian Real Estate Association, says sales are still well above historical norms – about 15 per cent above the 10-year monthly average in July.

“But here’s the bigger issue,” he says. “We’re always focusing on the ups and downs of the sales numbers. What’s more relevant to the conversation right now is not that sales are more ‘normal’ than they were a few months ago, it’s that a historically high number of transactions are still coming out of an end-of-month inventory of properties for sale that is the lowest we’ve ever seen.”

That’s why prices are unlikely to fall, he says. “The problem of high housing demand amid low supply hasn’t gone anywhere. The COVID-19 pandemic at least shone a big spotlight on it. That got almost everyone to agree on what the problem is – supply.”

CREA’s latest forecast says the national average home price will rise by 19.3 per cent on an annual basis to just over $677,775 in 2021. Sales are forecast to fall by 13 per cent to 594,000 units in 2022. “This easing trend is expected to play out across Canada with buyers facing both higher prices and a lack of available supply, while at the same time the urgency to purchase a home base to ride out the pandemic continues to fade alongside the virus itself,” says the CREA forecast.

Robert Hogue, senior economist at RBC Economics, says, “We expect to see more sellers come out of the woodwork this fall as pandemic disruptions further ease. Completion of units under construction will also gradually boost supply in some markets later this year or early next. Yet there remains a great deal of uncertainty about the supply response. The fourth wave could keep potential sellers on the sidelines, and supply chain disruptions could delay construction timelines. For buyers hoping for a price break, more patience might be required.” 

Some of the pandemic-era housing trends may have run their course, says Robert Kavcic, senior economist and director, economics at BMO Economics. “Think single-detached versus condos, rural versus urban, cottages versus travel and other spending. One could argue that some of those shifts went too far during the height of the madness, and we could see some undoing ahead, even if a lot of the underlying change is permanent.”

Royal LePage forecasts even more housing demand in the coming months.

“Household formation will undergo another major shift before the end of the year, with many young Canadians who chose to move in with parents during the lockdown looking for their own places to live,” says Phil Soper, president and CEO of Royal LePage. “As the hospitality industry reopens and employment opportunities abound, new sources of housing demand will emerge. Finally, we will welcome back hundreds of thousands of foreign students and a new wave of immigration. All of these people need to put a roof over their heads, which will encourage a wave of entrepreneurial landlords – investors eager to provide rental accommodation. 

“These new sources of demand should sustain the housing market at buoyant levels through the all-important spring market in 2020.”

Don Kottick, president of Sotheby’s International Realty Canada, says, “There has been a major shift in the psychology of luxury real estate consumers and homeowners. The new reality is that as the perceived value of living space has increased, affluent buyers’ willingness to pay for luxury real estate space has increased exponentially. Affluent consumers are more prepared to invest in additional space and in next-level architecture and design, whether through upsizing, home renovations or home building. This is elevating the quality and pricing of housing in Canada’s most prestigious neighbourhoods, in many cases, permanently.”

Sotheby’s is “forecasting multiple waves of consumers in the coming months, both local and international, who have a desire for Canadian real estate ownership that has never been stronger,” says Kottick. “Most importantly, these potential buyers have unprecedented access to cash and low-cost borrowing that will enable them to engage in the market in months to come.”

The Bank of Canada is expected to start increasing interest rates sometime in 2022 and that could slow the market, says a report by Benjamin Tal at CIBC Economics and William Johnston of Equifax Canada. “It appears that during the past year or so, the historically low mortgage interest rates generated a sense of urgency to get into the market, and therefore created a situation in which activity was ‘borrowed’ from the future. The recent slowing might suggest that the future has arrived,” says the report.

They also suggest that “following the meteoric ascent in the price of detached units during the pandemic, prices have reached, in our assessment, a resistance level, in which potential buyers are more reluctant to buy despite low interest rates.

“Suburban markets that surged in the past year, and properties in cottage country, are likely to be the first to pause. The real impact will become evident when interest rates rise in 2022.”