Housing Markets so far During COVID-19

Ottawa, February 25, 2021

Multiple factors, including the governments’ fiscal response to the pandemic, regional variations in shutdown measures, different homebuyer reactions and pent-up demand, as well as unequal employment and financial impacts across household groups, have resulted in higher than expected sales, average prices and housing starts. By the end of the third quarter of 2020, these trends had unexpectedly recovered beyond pre-pandemic levels, despite the continuing health crisis and the associated risks to economic recovery.

The Housing Market Insight – Home sales and prices in major markets during COVID-19 released today by Canada Mortgage and Housing Corporation (CMHC) examines trends in existing home sales and prices during the COVID-19 pandemic in Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal in 2020. It focuses on sales and average prices. Future work will examine housing starts.

Forecasting is difficult under normal circumstances and amid an unprecedented global pandemic, even more so. The economy and housing markets were stronger over the summer and fall than we had initially forecasted early in the pandemic. This updated analysis compares economic and housing developments during the COVID-19 pandemic in Canada’s major markets to conditions in the pre-COVID period at the end of 2019. We also examine differences between our forecasts for home sales and prices and how major housing markets actually evolved throughout the pandemic.

Highlights:

In the second quarter of 2020, sales and price levels declined sharply as governments introduced restrictions due to COVID-19. The withdrawal of households from normal activity to avoid infection amplified severe economic impacts.
By the end of the third quarter of 2020, home sales, average prices and new housing starts had recovered beyond pre-pandemic levels, despite the pandemic continuing and the associated risks to economic recovery.
The unexpectedly high level of housing activity observed thus far in the pandemic reflects:
Initial lockdown restrictions during the second quarter resulting in a delay in demand, which hit the market suddenly in the third quarter as restrictions eased.
Governments COVID-19 response spending and mortgage deferral programs may have delayed foreclosures, which held listings down as demand was coming back to the market and sales outpaced new listings.
Limited options for spending allowed household savings rates to go up to historic levels in the second and third quarters of 2020. The reassurance of low and stable interest rates combined with higher savings appear to have encouraged many households to fund home purchases.
Higher-income workers adjusted rapidly to the pandemic by working from home. Their rapid recovery and pent-up demand transmitted to the resale market by the third quarter of 2020.
Sales growth was stronger in the more expensive housing in Vancouver, Toronto, Ottawa and Montreal, further supporting price gains in these markets. This shift likely reflects the uneven distribution of the economic impacts of the pandemic, with higher-income households able to maintain their income.
Demand for less expensive housing still fell in the wake of major loss of income for households employed in lower-paid industries, which could not adopt remote work conditions (like accommodation and food services) and sharp decline in new migrants’ arrival.
In oil-producing provinces, lower oil prices interacted with the effects of the pandemic to produce more changes that are complex.

Although housing activity in most major markets has been unexpectedly strong during the pandemic, we remain concerned about major risks. In particular, employment conditions remain below pre-COVID levels while the high level of supportive government income measures are temporary in nature. Full and sustained recovery continues to depend on the uncertain course of the pandemic.

CMHC supports the housing market and financial system stability by providing support for Canadians in housing need, and by offering housing research and advice to all levels of Canadian government, consumers and the housing industry.

For more information, follow us on Twitter, YouTube,

Quote:

“Home sales and prices have been unexpectedly strong during the COVID-19 pandemic in Canada’s major markets. This reflects pent-up demand from the early months of the pandemic, low mortgage rates and the uneven impacts of the pandemic across income groups. The sustainability of recent housing market trends will depend on the uncertain course of the pandemic.”
— Aled ab Iorwerth, CMHC’s Deputy Chief Economist