Canadian home building could drop by as much as 75 per cent and prices could decline by up to 25 per cent in oil-producing provinces, the country’s housing agency said in its outlook that predicts a long recovery from the coronavirus pandemic.
Work stoppages and restrictions on construction have slowed residential building, especially in Quebec and Ontario, which could drive housing starts down between 51 per cent and 75 per cent this year from the peaks hit in the first quarter, according to Canada Housing and Mortgage Corp.
“Following large declines in 2020, housing starts, sales and prices are expected to start to recover by mid-2021 as pandemic containment measures are lifted and economic conditions gradually improve,” the agency said in a special outlook released on Wednesday.
CMHC reiterated that home prices across Canada could fall between 9 per cent and 18 per cent, and predicted that Alberta and Saskatchewan could experience declines as steep as 25 per cent, as the resource-dependent provinces have suffered a double blow from the pandemic and sharp drop in oil prices.
The agency made its dire prediction just more than a week after CMHC chief executive officer Evan Siddall angered the real estate industry with his estimate for up to an 18-per-cent drop in home prices. Some realtors called his forecast “irresponsible,” as home prices in major markets have so far remained flat since the Canadian economy started shutting down in mid-March.
Since that time, real estate activity has deteriorated, with new home sales and existing home resales falling precipitously. Across Canada, home resales fell 57 per cent in April, over last year. Meanwhile in the Toronto region, the country’s biggest real estate market, sales have plummeted 80 per cent for new homes and 67 per cent for resales.
Over all, the housing agency expects sales to fall as much as 30 per cent from prepandemic levels before slowly recovering after 2022.
CMHC’s chief economist Bob Dugan said the housing starts and home price forecast had a wide range because there was so much economic uncertainty and predicted that sales and prices would remain below the prepandemic levels until the end of its forecast in 2022.
"The precise timing and speed of the recovery is highly uncertain because the virus’s future path is not yet known,” he said.
The CMHC forecast applies to the peak of the market to the trough. Housing starts are expected to hit their low in the fall, with a range of between 101,492 and 51,435. In comparison, the seasonally adjusted annual rate was more than 200,000 in the first three months of the year.
“The duration and strength of the recovery in housing starts and residential construction generally is highly uncertain due to factors that are difficult to predict based on past experience,” the housing agency said.
The national average sale price is seen hitting its bottom in the second quarter of next year, with a range of between $482,210 and $434,645. In comparison, the average selling price in March was $540,000, according to the Canadian Real Estate Association.
About 15 per cent of banks’ mortgage holders have deferred payments, according to the Canadian Bankers Association. Those deferrals are due to end in the fall, which could further depress prices if mortgage holders are unable to restart loan payments and are forced to sell their properties.
Mr. Dugan pointed to the Bank of Canada’s wide-ranging outlook for economic activity to be between 15 per cent and 30 per cent lower in April through June compared with the fourth quarter of last year. As well, he said the unemployment rate was closer to 20 per cent, not Statistics Canada’s 13-per-cent rate, because of the number of people who have stopped looking for work.
Economists have questioned whether Mr. Siddall’s predictions last week were for a worst-case scenario, and CMHC’s housing outlook confirmed that its grim estimates were based on a significant and protracted downturn in the economy and housing market.
“We don’t expect this to be a quick recovery,” Mr. Dugan said.
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