Key Trends from CMHC’s 2020 Housing Market Outlook
In a special edition Housing Market Outlook report, the Canada Mortgage and Housing Corporation (CMHC) discusses the effects of COVID-19 on housing in major urban centres across the country. This report uses data-driven insights to assess potential outcomes for Canadian cities over the next 24 months, as summarized in our article below.
From unemployment to construction delays to reduced migration, it’s no surprise that COVID-19 has led to reduced housing sales in every major Canadian city.
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.
– Aled ab lorwerth Deputy Chief Economist, Canadian Mortgage and Housing Corporation (CMHC)
The good news is that most of the impacts are expected to resolve themselves over the next 12-18 months – but recovery is highly dependant on the conditions being faced in individual cities. Here are some of the factors that will come into play as our housing market finds its new normal.
Unemployment & Income Instability
The biggest factor influencing home sales is employment uncertainty. According to Statistics Canada, more than three million Canadians lost their jobs between March and April. By May 26th, the Canada Emergency Response Benefit had received over 8 million unique applications for financial relief. This uncertainty in our workforce has justifiably caused many Canadians to reconsider buying a home during the pandemic.
In addition to unemployment, several Canadian cities are also facing industry-specific challenges. Edmonton and Calgary which rely heavily on the energy industry have been hit hard by the pandemic. The sharp drop in oil prices has sent shock waves across the province and while prices are slowly climbing, restrictions to travel has led to reduced demand. As a result, we can expect that Alberta’s economy will remain weakened until the oil industry rebounds.
Controversially, urban centres with heavier office-based economies, such as Toronto, are benefiting from remote work. The ability to work from home has allowed a greater number of individuals and families to maintain a steady income during the pandemic. Because of this, negative impacts on the housing market will likely be less severe than other cities.
Housing Supply & Demand
While every region has seen a general decline in construction, the outlook for new housing is highly dependent on each cities’ pre-pandemic circumstances. Urban centres around the world are afflicted by the global housing crisis and have taken steps in recent years to meet demands for new housing supply – and our housing markets are no different.
Many of our urban centres had ambitious construction projects in the works long before the novel coronavirus. Unfortunately, the necessary measures taken to reduce the spread of COVID-19 also caused significant delays in new construction. The severity of the delays has a direct correlation to the specific provincial and federal physical distancing guidelines implemented in each city. For example, construction projects have been able to proceed in Vancouver, while Greater Montréal Area had to pause construction activity altogether.
The other factor influencing new construction builds is the level of competition within each market. Cities like Montreal and Toronto can rely on strong pre-construction sales and a continued demand for rental and entry-level housing. While they will still need to navigate supply chain challenges, the demand for new construction remains strong in these cities.
COVID-19 has undeniably had negative impacts on all demographics, but when it comes to the housing market, the youngest and newest Canadians have a particularly difficult road ahead.
The first challenge they will face is income instability. To date, the greatest number of job losses has been in low-income industries such as retail, hospitality, and various temporary environments. These industries are predominantly staffed with young adults, students, and newcomers who are unable to pursue new housing opportunities without steady income.
The other demographic issue is Canada’s reliance on immigration – specifically in the rental market. From migrant workers to international students, many traditional renters will remain out of the country until travel restrictions begin to ease. Even once the boarders have opened, the move to online classes and remote work may led some of the typical renting demographic to reconsider their move to Canada.
While these factors may be troublesome for landlords, they may also help alleviate some of the housing supply pressure felt in urban centres. In cities like Vancouver and Toronto, vacancy rates have been problematically low for quite some time and the availability of new supply may help other demographics. For example, this could create opportunities for Millennials who have steady income but have been unable to secure housing in highly competitive markets.
While we anticipate the economy and housing market to bounce back over the next 24 months, a general uncertainty and caution remains. There are still several unknowns that will impact our recovery – from a potential second wave to the availability of a vaccine.
What we do know is Canadian cities and townships will face a diverse set of challenges that will require public and private sectors to quickly pivot. With research like this from CMHC, we will be able to look more closely at individual markets and use innovative thinking to help them solve their specific challenges. These are unprecedented times that will require unprecedented solutions – and we believe it’s up to all of us to help lead that charge.