Why the Canadian Housing Market Is Hovering within the Pandemic
This week started with an unusual apology. Evan Siddall, the president and general manager of Canada Mortgage and Housing Corporation, took to Twitter to acknowledge that the federal agency made a mistake last year in predicting that the economic collapse caused by the pandemic would lead to a drop in property prices could result up to 18 percent.
Instead, of course, Canada is talking again about whether most of the country is in a real estate bubble that is about to burst. In Vancouver, the reference price for single-family homes rose 13.7 percent year over year to CAD 1.6 million last month. In the Toronto area, the average single-family home sales price increased 23.1 percent over the same period, and a total price that includes all types of housing was over $ 1 million.
A seller’s market prevails in many parts of the country, even in times of economic hardship for many. After my mother died earlier this year, I was surprised to learn that bidding wars, associated with Toronto and Vancouver, were common in my hometown of Windsor, Ontario, for the sale of even relatively modest homes like hers. In my neighborhood in Ottawa, a city that has had a record number of home sales in the past month, it takes little time to put “sold” stickers on sales signs.
But the pandemic didn’t start that way. In his Twitter posts, Mr Siddall noted that the real estate market had contracted sharply in the first few months of the crisis.
About a quarter of Canadians received emergency income support after their jobs were suspended for shutdowns, large numbers of Canadians postponed their mortgage payments, and Mr Siddall’s agency stepped in to buy $ 150 billion worth of mortgage securities to help the market To sustain life. In addition, in Mr. Siddall’s opinion, prices were already unsustainable in many places.
A report by his agency shows why, despite these factors, the market did not stall, but rather wavered.
One factor is that the pandemic did not hit the incomes of high-income people as badly as it did others. In Ottawa, Montreal, Toronto and Vancouver, the report said, price increases were most pronounced for higher-priced homes. Higher income people have suffered less from unemployment because they tend to have jobs that can be done remotely.
They were also able to save more than usual because they were spending less due to travel and shopping restrictions. Combined with ultra-low mortgage rates, homes have become an attractive destination to spend that money.
Another reason for the surge in demand, as the report noted, was that when the market nearly closed at the beginning of the pandemic, it created a pent-up demand that was sparked later last year. In many regions, buyers soon outnumbered sellers in the market, the report said – a perfect situation for sellers.
Mr. Siddall, who is about to step down from his already extended tenure at CMHC, is not a real estate industry favorite. Many of the businesspeople disliked his agency tightening the qualification rules for mortgage insurance, which it sells to banks to lend to heavily indebted home buyers. And many accuse him of being a spoilsport who scared buyers with his warnings.
Last year when he offered the wrong market forecast, Mr Siddall said it had a duty to warn young Canadians about the financial dangers that a fall in house prices, a rise in interest rates and an increase in personal debt could bring.
While admitting his forecasting errors, Mr Siddall was no less cautious about the future this week.
“Times were uncertain and I felt that a warning about property prices was responsible,” he wrote of last year’s caution. “Today we remain very concerned.”
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Ian Austen is from Windsor, Ontario. He was educated in Toronto, lives in Ottawa and has been reporting on Canada for the New York Times for 16 years. Follow him on Twitter @ianrausten.
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