A recent report from CIBC economists Benjamin Tal and Katherine Judge suggests that the effects of COVID-19 on Canadian home prices won't be fully felt until 2021.
The report comes at a time when provinces are beginning to allow the gradual reopening of the economy. Though, Tal and Judge contend that their "working assumption is that a flattening of the virus curve will not be a green light to go back to normal."
READ: $5M in 5 days: Buyers Appear Unafraid of the COVID Market
Based on the market's recent stagnation, the likelihood of a return to normal taking place in a recession, and a delay in housing completions and new housing starts, the report suggests that the real estate market will not escape the same economic volatility the rest of the world is facing.
CIBC
"Look for large swings in both demand and supply here. By 2021, as the economics of housing returns to fundamentals, we expect an array of factors to result in a weaker market with some downward pressure on prices. Demand will be reduced by a weak labour market and weaker investment activity. Forced sales will add to supply, and probably outweigh the offsetting impact of reduced supply of new units. Overall, as the fog clears, we expect to see average prices 5-10% lower relative to 2019 levels, with high cost units in the high-rise segment of the market seeing the most notable price declines."
CIBC's forecast comes just days after TD Bank released a similar report, albeit one that takes a completely different outlook, suggesting that home prices will increase nationally in 2020:
"Home price growth is projected to hit a national average of 6.1% in 2020, compared to a 2.3% increase last year. Here in Ontario, home prices are forecast to increase by 8.3% in 2020, while Toronto could see an increase of 7.8%, compared to 4.1% in 2019."
Tal and Judge, meanwhile, paint a market with very little to look forward to over the coming months; however, they do note that the "housing market, in general, began the crisis on solid footing," based on recent annual average home price double-digit growth, and "months of supply of units was at a post-recession low in February."
Though signs of Canadian home prices losing momentum have already been spotted, and the number of transactions and home prices in the GTA both took significant hits in the first half of April.
"In the coming few quarters, housing activity will dance to the volatile tune of economic activity. During that period, we expect continued reduced levels of activity, and an unreliable and volatile price mechanism. In the immediate period following the introduction of a vaccine, and as we enter the recessionary recovery period, we see the functionality of the housing market returning to normal, at a lower level of activity relative to its pre-crisis trend."
Rental Market
Due to a combination of the aforementioned slowdown in housing completions and new starts, and the effect COVID-19 and its subsequent health restrictions will have on new immigrants and nonpermanent residents (NPRs) in Canada, the rental market is likely to see its own downturn, according to Tal and Judge. New immigrants and NPRs make up a significant portion of rental demand each year in Canada and with borders currently closed, this could have a drastic effect on the number of renters across the country.
The report cites a number of factors to support a future rental reduction or slow down in growth, including the conversion of short-term rentals into long-term units, reduced demand, and weaker investment activity.
CIBC
This, despite the national rental vacancy rate having fallen to a 17-year low before the outbreak and rental inflation reaching a record-breaking 5.2% annual increase.
By mid-April, Urbanation was already suggesting renters could see relief in the post-COVID marketplace.
For an in-depth look at where the real estate market currently finds itself in the time of COVID-19, including insights from Don Kottick, president and CEO of Sotheby’s International Realty Canada, Benjamin Tal, deputy chief economist at CIBC, John Pasalis, president of Realosophy Realty, and many others, you can check Toronto Storeys' Real Estate of the Union.
