CMHC Forecasting Market Won’t Return to Pre-COVID Levels Until 2022

CMHC
Photo by Paul Hanaoka on Unsplash

The Canadian Housing and Mortgage Corporation (CMHC) has released a Housing Market Outlook, a special Summer 2020 report that focuses on Canada’s major real estate markets.

In an effort to build on its provincial market outlook published on May 27, which also forecast that the market will feel the effects of COVID until 2022, the summer report provides a deeper look into the country’s major urban centres, including Vancouver, Calgary, Edmonton, Toronto, Ottawa, and Montreal.

“COVID-19 has had unprecedented impacts on Canada’s urban centres. Short-term uncertainty will lead to severe declines in sales activity and in new construction. As the virus is overcome, cities will bounce back but there is significant uncertainty with respect to the path and timing of the recovery,” said Aled ab Iorwerth, Deputy Chief Economist for CMHC in the report.

The crown corporation made waves in mid-May when it forecast an average drop in Canadian home prices of up to 18% over the next 12 months.

In their Summer 2020 report, CMHC’s predicts that, “Home sales in the Greater Toronto Area (GTA) will decline for the rest of this year, and then start to recover by 2021 Q1 and show growth throughout 2022,” and that “Average house prices… will decline throughout the remainder of this year and into 2021.”

And while Toronto home sales have undoubtedly been drastically affected by COVID, reaching historic lows in April, through May, the 416 area has yet to see a decrease in its average home prices, instead, seeing a slight year-over-year increase. In fact, the market has only continued to get more and more competitive the further it has moved away from April.

The reasoning behind CMHC’s belief that Toronto housing prices will falter is a combination of:

  • Homeowners will choose to keep listings off the market to wait and see how market conditions develop
  • Lower mortgage rates, mortgage deferrals and fiscal stimulus packages will likely ensure that many homeowners are able to meet their monthly mortgage payments
  • Anticipated increases in the supply of condominium apartments will lead to softening prices next year
  • Buyers will wait on the sidelines due to loss of jobs/income and wanted assistance in 2021
  • A significant number of condominium units under construction (54,000 units currently) will make its way to the resale pool and will further increase supply

The upside risk to the forecast, according to CMHC, is a milder price correction, while the downside risk is a “more severe and prolonged adjustment to the pandemic that will have far-reaching economic consequences.”

However, due to its high levels of pre-construction sales, the report notes that “Toronto’s recovery will be slightly stronger than that of the rest of Ontario in 2021 and 2022.”

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