Super-strong Housing Market Is Far from Risk-free

April 8, 2021

RBC Economics Publishes – Canadian Housing Health Check, March 2, 2021

By Robert Hogue

A report for an assessment of key Canadian housing market indicators.

This is a report worth your time reviewing because it gives a lenders perspective on the current housing climate.

Here are some of the highlights…link to the full downloadable report below.

COVID-19 wasn’t the much-feared Armageddon for Canada’s housing market: Unprecedented government aid, supportive actions from financial institutions and rock-bottom interest rates contributed to keeping property values on track.

Main near-term risk is overheating, not price collapse: Super-strong demand is quickly depleting inventories across the country. Competition between buyers is extremely fierce in many markets (including smaller ones), and a ‘fear of missing out’ is taking hold. Such dynamics often lead to self-reinforcing price trends.

Interest rate risk could rise if the economy outperforms expectations: Exceptionally low rates provide a powerful tailwind for the market. This wind could change direction if a quick economic recovery stokes inflation fears, causing interest rates to rise.

Odds of policy intervention increase the hotter markets get: Events in British Columbia (2016) and Ontario (2017) have shown us policymakers come under intense pressure to stabilize markets and contain household leverage risks when prices spiral upward.

Fall in immigration could put the brakes on housing demand if sustained: The impact of persistently low in-migration would likely spread beyond the rental market of Canada’s largest cities. Condo markets could become vulnerable.

Prolonged labour market weakness would pose a risk: High unemployment could outlast government support programs, potentially undermining housing demand.

Pandemic still represents a threat to the housing market: New variants could emerge that could destabilize the economy.

Poor affordability remains a major issue in major markets: The high cost of homeownership in Vancouver, Toronto and, to a lesser extent, Montreal are a top vulnerability for Canada’s major markets.

Strong condo construction isn’t a sign of overbuilding: But elevated levels of apartment construction in Vancouver, Toronto and Montreal raise some potential longer-term absorption issues. Very low unsold inventories significantly limit risks near term.

Click here for your pdf copy of the the full report.