It's safe to say that 2020 was a year like no other, and as it draws to a thankful close, it's time to start thinking about what's in store for Canada's housing market in 2021.
After briefly being put on hold during the outbreak this spring, Canada’s housing market has since seen record-breaking growth, which is expected to continue into the new year.
But what else can we expect to see in the coming months? Will homeowners continue to take advantage of the historically low mortgage rates? Can we expect to see rental demand return in Canada's larger housing markets? Fortunately, Lauren Haw, CEO of Zoocasa, has addressed these concerns and more in her 2021 housing market trends report.
From condo-dense markets seeing an uptick in rental demand to mortgage rates remaining affordable, read on to learn Haw's housing market predictions for 2021.
1. 18-Hour Cities Across Canada Will Continue to Drive Housing Demand
With remote-working options becoming more common across the country -- with some companies making it permanent -- a growing group of homebuyers in dense, major cities like Toronto have begun prioritizing space, where they may have previously prioritized workplace proximity.
This has resulted in not only soaring single-family home sales, but it also spurred buyers to expand the boundaries of where they searched for their homes far beyond city limits. "Many looked to 18-hour cities, often defined as 'mid-size cities with attractive amenities, higher-than-average population growth, and a lower cost of living and cost of doing business than the biggest urban areas” to find better value,' explained Haw.
For example, in Ottawa, home prices rose 19% year-over-year in November, and competition remained fierce among prospective buyers. “With huge buying demand being fuelled by out-of-town buyers transitioning to the Ottawa market, we can expect prices to be driven up in the new year,” said Jonathan Amodeo, Broker at Zoocasa in Ottawa.
With more options to live and work remotely, Haw says she expects that home buyers will continue to look further for affordable, spacious, single-family housing, which, in turn, is expected to drive demand within these cities and consequently put upward pressure on home prices as has been the trend in 2020.
2. ‘Typical’ Seasonal Real Estate Cycles Will Return And Buyers Will Face Strong Competition
As the country came to a near stand-still in March after stay-at-home orders were implemented, the spring housing market also came to a halt; with record-breaking declines in prices and sales.
In response, the real estate industry pivoted to a virtual-first model, and as conditions improved, real estate boards and associations across the country introduced strict safety protocols to prioritize the safety of buyers, sellers, and employees.
And as case numbers eased over the summer, pent-up demand and limited inventory resulted in what many described as a “delayed spring market” effect, which subsequently led to the record-breaking sales experienced throughout the rest of the year.
"Based on today’s expectations of an approved COVID-19 vaccine being rolled out in the coming weeks and months, plus an entire real estate industry that now has experience safely working within the framework of COVID-19 as we know it, buyers and sellers can expect for more traditional real estate cycles to reemerge in 2021 – with the market being at its busiest in the spring and the fall," says Haw.
What's more, a recent Zoocasa report found that housing competition strongly favoured sellers in 25 major Canadian housing markets -- with some of the most competitive conditions existing in Canada’s mid-sized cities. Haw says we can expect this trend to continue, as more Canadians who are seeking out more square footage and green space are willing to look further for housing.
3. Condo-Dense Markets Could See An Uptick in Rental Demand
Following widespread closures across workplaces, universities, and the Canadian border to tourism and immigration, rental vacancies rose 2.8% in condo-dense markets like Toronto in October -- up from just 0.7% the year prior -- and at the highest levels for the first time in over a decade. The low demand led to an increase in new listings and a consequent drop in rental prices, particularly across the city centre, and in areas popular for short-term rentals.
"If the border opens up, and life begins to trend closer to what it was like pre-pandemic as a result of the vaccine, we can expect demand for rentals to grow again in city centres, particularly in the latter half of the year," says Haw.
Andrew Kim, a Zoocasa agent in Toronto added that “if a renter is looking to get into a beautiful, trendy downtown condo at a prime location, now is a great time to lock it in.”
4. Mortgage Rates Will Remain Affordable
In response to the pandemic, the Bank of Canada kept the overnight lending rate at it’s “effective lower bound” of 0.25% for much of the year, with plans to maintain this rate until “economic slack” from the pandemic is absorbed, which is likely to be until at least 2023. Mortgage rates, in turn, remain at an all-time low, with fixed mortgage rates hovering near the 1% mark.
"Based on the Bank’s guidance, we can expect the overnight lending rate to remain steady for much of 2021 as the economy reacts to short term spikes in COVID-19 cases and recovers over the long term as the vaccine is rolled out," says Haw.
Haw added that as far as mortgage rates go, there is still potential for a slight increase in fixed rates as the bond market recovers in response to vaccine news and rollout. This in turn could impact the rate at which real estate prices rise toward the latter half of the year.
5. The Housing Market in the Prairies Could Get A Boost
This year, the Prairies have been hit hard by the pandemic and the ongoing impact of fluctuations in the energy market on jobs and consumer debt and spending. That being said, Haw says housing competition remains fierce in the region, with all major areas in the region experiencing strong seller’s market conditions this fall.
"With average home prices under the $500,000 mark across the Prairie region’s largest cities, if the world starts turning again and the economy and immigration into the region begins to recover in response to the vaccine, we can expect that the housing market in the Prairies may start to bounce back later in the year," says Haw.
While predictions such as these help paint an optimistic outlook for what to expect in the new year, just like the pandemic, the Canadian housing market remains largely unpredictable, and only time will tell how the year will actually pan out.