A report released by RBC Economics today contains some positive, albeit realistic, insights for the future of the Canadian economy and the Canadian housing market.
The report begins with the following declaration: “While it’s too early to declare victory against COVID-19, the economic downturn that came along with aggressive containment measures in a large number of developed countries appears to have bottomed.”
This could be true when looking at the housing sector across the GTA. The month of May, while certainly not a banner month by any means, did manage to make April seem like the low point of the COVID-19 fallout. The number of home sales in May remained down on a year-over-year basis, but that 53.7% decline was still less than the drastic 67.1% year-over-year decline reported for April 2020. What’s more, the number of new listings rose 47.5% on a month-over-month basis, according to the Toronto Regional Real Estate Board (TRREB).
So, while May was certainly nothing to brag about for the Toronto area real estate industry, it was better in nearly every way than April, suggesting that the market may be starting to look past COVID-19 and all its implications. The bottom may have already been reached, and we may be on our way back from the worst of it.
But despite this local “positivity”, RBC suggests this is only the beginning of a very slow recovery: “Consumer spending, home resales and measures of business sentiment also improved in May albeit from unprecedented lows. While the May data was encouraging, the recovery will remain slow and depend on continued progress on curbing the rate of infections.”
Indeed, the current unemployment rate in Canada hit a record high in May at 13.7%, despite the country managing to add 290,000 new jobs. RBC is now forecasting Canada will end 2020 with a real GDP growth of -5.9% (compared to 2019’s real GDP growth of 1.66%); however, the bank believes that while 2020 will end with “Canada’s economy running significantly below potential,” and is projecting an overall growth in GDP in 2021 of 4.2% – more than a full percentage point beyond 2009’s initial rebound from the financial crisis.
Combine this economic outlook with CMHC’s recent claims that the average home price in the country will drop between 9 and 18% over the next 12 months and that the effects of COVID-19 on the housing sector will be felt into 2022, and it’s clear why RBC is hedging on a downturn.
According to the report, “Low levels of immigration (another byproduct of the crisis), and an elevated unemployment rate will likely curb the rebound in the housing market with sales likely to fall by almost 20% and prices, which have held up well so far, likely to come under stronger downward pressure over the second half of the year.”
Before instituting border restrictions due to the spread of COVID-19, Canada pegged its immigration target at approximately 1 million between 2020-2022. The GTA has received about one-third of the country’s migrants, or about 100,000 people, in the past couple of years, Pauline Lierman, director of market research for Urbanation told Toronto Storeys last month. But a May 12 report from The Conference Board of Canada estimates the number of people coming into the region will drop to 65,710 due to the pandemic in 2020. While the government aims to announce a post-COVID immigration plan before its annual announcement this fall, a 35% decrease in the number of migrants in the GTA will certainly impact both the rental and home sale sectors of the housing industry.
RBC believes that “low-interest rates and access to credit will also be instrumental in guiding the economy back to health.”
With the end of CERB payments quickly approaching for millions of Canadians, and more than $180 billion in mortgage payment deferrals already on the balance sheets of Canada’s “Big Six” banks, it seems as though summertime is going to turn up the heat in more ways than one this year.
The Canadian housing market better hope to find some shade soon.
With files from Christina Varga