In line with our expectations, the Canadian housing market has held up despite the COVID shock. For Canadians, this is crucial as a resilient housing market leaves consumers in a more robust shape as we navigate through this COVID world. Despite high uncertainty and a wave of unemployment, sales and construction activity have fully recovered. Home sales collapsed by a record 63% over March and April but have bounced back to pre-COVID levels. Construction activity has fared even better, with housing starts down 22% over the same period but have since rebounded above pre-COVID levels (Chart 1). Sales-to-listings ratios have also recovered to above 60, indicative of a seller’s market and supportive of home prices.
Ultra-low interest rates, pent-up demand, and changing consumer tastes have driven the speedy recovery. Past population growth and tight labour-market conditions underpinned strong pent-up demand to be unleashed after COVID effectively delayed the spring buying season. The labour market has deteriorated, but the most affected groups of workers–younger age cohorts–have lower homeownership rates. Past immigration growth, whit a net 1.1 million immigrants arriving in Canada since 2016, will remain a tailwind this year as it tends to drive home buying activity at a lag. Finally, the exodus out of cities is spurring demand in suburban and rural regions.
We expect housing activity and prices to remain supported into year end, but depending on the path of the virus, immigration and the job-market recovery, 2021-22 is when things could prove more challenging. Mortgage deferrals and unemployment benefits will end in Q4, and population growth will slow dramatically from lofty 1.5% levels as border and travel restrictions slow immigration. Rental prices are most likely to feel the downward pressure given pockets of oversupply in downtown areas. Rental demand is also more affected by COVID as younger ages and immigrants are more likely to be renters.