Canadian real estate values have been a hot topic for some time, and even more so during the pandemic. Canada Mortgage and Housing Corp. recently forecasted a drop in prices of up to 18 per cent in the coming year, which RE/MAX argued was unlikely to happen. The federal housing agency further announced that as of July 1, 2020, stricter qualification rules for insured mortgages will take effect, in an effort to “protect future home buyers and reduce risk.” Christopher Alexander, Executive Vice President and Regional Director at RE/MAX of Ontario-Atlantic Canada gives BNN Bloomberg his view of the Canadian real estate market and the current housing shortage, which is the biggest concern. Alexander warns that without a national housing strategy to address the supply issue, the housing affordability problem will persist.
Many Canadian housing markets are currently experiencing low supply and extremely high demand. This has been the story across Canada. “I think that is going to continue for the foreseeable future. We’re seeing signs right across the country, outside of parts of Alberta, where there’s just not enough inventory to keep pace with demand,” Alexander told BNN reporter Greg Bonnell in a video interview.
Indeed, the latest data released by the Canadian Real Estate Association and the Toronto Regional Real Estate Board indicate increasing market activity since the big drop-off between March and April. With historic job losses and the recession, the question was asked about how real estate can continue, in light of this huge economic event.
Canadian Real Estate Outlook Remains Positive
“There’s no question there has been a tremendous amount of job loss, but unlike the past recessions and most recently, the housing crisis in the United States in 2008, most of the people losing their jobs [due to the pandemic] are in the service industry and aren’t necessarily in the home-buying space,” Alexander notes. “Many executives and professionals still have their jobs. Some of them have had to take a reduced pay, but they seem to be willing to make that buying decision. We’re seeing signs of this not just in the marketplace but online on our website and from consumer behaviour. All things are pointing to improved activity across the board.”
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With the pandemic and job losses disproportionately affecting lower-income workers in more precarious lines of work, Bonnell points out, “We’ve made money cheap because of the crisis and people at the higher end of the income scale have not lost their incomes. They’re still going to transact in real estate. If we push prices even higher, how do we bring affordability to these other people?”
Alexander answered the question with something his organization has been lobbying for, for some time: the need for a national strategy.
“I personally and [RE/MAX] as an organization wholeheartedly support responsible lending practices, such as CMHC’s most recent adjustments to mortgages, but that’s just a temporary bandaid for the overall issue – that is we don’t have enough supply to keep up with the demand,” Alexander says. “For Canada’s major hubs such as Toronto, Vancouver and Montreal, it’s going to be a challenge to keep pace [with demand] for the foreseeable future, especially when you consider that the government continues to attract and promote more and more immigration to help bolster out economy. This is a great thing, but all of those people are going to need a place to live, and unless we have a strategy from all levels of government to bring more supply into the market, create more affordable housing, incentivize homebuilders and developers to build more affordable units, and think of ways to incentivize first-time homebuyers to get into the market.”
Alexander further highlighted Land Transfer Tax as a major obstacle for homeowners looking to sell, which will further impact housing inventory and in the ling run, the real estate market outlook in Canada. “There are so many barriers that are putting a strain on the Canadian homeowner and preventing them from putting their home on the market. In addition to the influx people we get every single year, it’s going to be a continuous strain, and I think it’s going to be tough. There are going to be people that have lost their jobs that may be in a difficult position, and they are going to need to put their home up for sale and get it sold, but there is still more demand than there is supply for the foreseeable future.”
Circling back to CMHC’s tighter mortgage rules taking effect on July 1, Bonnell inquired about a possible flood of purchasing, hoping to get into the market before the looming deadline.
“Yes, that happens every time, however Genworth and other [mortgage insurers] aren’t following suit,” Alexander notes. “I think this time it’ll be a little bit less of a frenzy. Typically when CMHC changes their requirements, the other insurers follow suit. This time they didn’t so I think this is going to give us some better balance the we’ve seen in the past heading into the summer.”