Tags: Coronavirus | housing | bubble | pandemic | north america | risk

North America's Biggest Housing Bubble Risk Defies a Pandemic

North America's Biggest Housing Bubble Risk Defies a Pandemic
(Dollar Photo Club)

Wednesday, 14 October 2020 08:50 AM

Even a once-in-a-century pandemic isn’t enough to cool the Canadian housing market, with prices nationwide now forecast to end the year higher than where they started.

The median home price in Canada is expected to reach C$693,000 ($527,000) by the end of the year, a 7% increase from the end of 2019, according to a projection from brokerage Royal LePage. The market continues to show strength across the country, with 97% of regions reporting higher home prices in the past three months, the company said.

In Toronto, which UBS says has one of the greatest housing bubble risks of any major city in the world, the average price reached C$975,980 by the end of September, up 11% from the same period a year before.

The resilience of Canada’s housing market is not unique: home prices in many parts of the developed world have been defying the gloom of the Covid-19 recession. Buyers, able to borrow money at historically low rates, have looked to suburbs and smaller cities in the hunt for more space, driving up prices.

Still, with elevated consumer debt levels and a sharp slowdown in new immigrants, Canada’s real estate market stands out as vulnerable, with prices far in excess of what many workers can afford.

“Prices right now are rising at an uncomfortable rate,” said Phil Soper, president of Royal LePage, adding that growth will slow this winter after summer’s post-lockdown boom. “The economy and the social data in Canada right now is not boom time.”

In a sign the pandemic may be starting to shift homebuyers’ behavior, the biggest price gains in Canada were seen not in Toronto but in suburban cities, including Oshawa, Hamilton and Mississauga, and in smaller cities like Windsor, Ontario, across the border from Detroit. Windsor had the biggest average price appreciation in the country in the last three months at 17%.

Condo Trouble

Toronto’s condo market is trailing other kinds of housing in the city, with 4.9% price appreciation in the July to September period. New data released last week showed a 215% increase in condos listed for sale in the city’s downtown at the end of September, a sign that outright price declines may be on the way in some pockets.

“The overall housing system seems to be dividing in two, and this is where risks start to appear,” said Aled ab Iorwerth, deputy chief economist at Canada Mortgage & Housing Corp., the country’s national housing agency. CMHC made one of the most bearish market forecasts in May when it said prices could fall between 9% and 18% this year.

While prices have gone the opposite way instead, ab Iorwerth points to falling rents, the growing preference for suburbs over downtown locations, and prolonged economic weakness as causes of potential softness in the condo market in particular, which could end up bringing down other house values too.

“All this suggests there’s going to be pressure on condo prices, and that can drag down other prices in the single detached or other types of housing units,” he said “So there’s a fragility there now.”

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Even a once-in-a-century pandemic isn't enough to cool the Canadian housing market, with prices nationwide now forecast to end the year higher than where they started.
housing, bubble, pandemic, north america, risk
Wednesday, 14 October 2020 08:50 AM
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