2018 was not a good year for real estate in Canada because sales had declined as well as the house prices but 2019 saw a rebound for most of the housing markets across the country. The sales number went up and stabilized and the prices also improved. It is expected that in 2020, that more houses are going to be bought and sold and those with the real estate industry are already wondering whether this year will show further improvement or whether things are going to decline again.
However, things are definitely looking up because a review of the forecasts by the leading real estate experts in Canada definitely shows that 2020 will be a better year. The CREA or the Canadian Real Estate Association had estimated that the national home sales are going to reach 530,000 units in 2020 which is an increase of 8.9% over the total sales of 2019. It is also expected that the national average price will be somewhere around $531,000 in 2020, resulting in an increase of 6.2%.
Key factors to keep in mind
Some factors are going to contribute to this growth:
The millennials are thinking of shifting to the suburbs and this will drive up the Canadian home prices next year.
The home prices in Toronto are also growing at the fastest pace in two years.
B.C. housing recovery is also speeding up amidst the growing population due to declining mortgage rates.
Industry experts are predicting a 3.2% year- over- year increase of housing prices next year with experts expecting the figure to be even better at 3.7%. Although their benchmarks are different from those of CREA, they are all headed to the same direction. A poll of 18 economists by Reuters had shown in November Canadian home prices would rise by 3% in 2020 and in 2.9% in 2021.
It has been seen that the positive forecasts for the housing market in 2020 is also being supported because of the huge number of rising immigrants in the country which had resulted in a steady increase of the demand for housing in the most populous housing markets of Canada. It has been seen in a survey in 2019 that newcomers to Canada are expected to buy one in every five homes over the next five years. At the same time, CREA had stated that the Bank of Canada will probably not raise the interest rates in 2020 that is going to affect the demand for mortgage finance.
What experts feel
However, although the overall picture looks optimistic, there are a few hiccups along the way as well. Not all the experts are optimistic about the 3 plus figure for jump in prices. According to a debt assessment firm, the forecast indicates that there will be only about 1% growth in housing prices in 2020 and when adjusted for 2% inflation, it actually shows a decline in real house prices for the next year.
Among other concerns, there is also the fact that the listing is not balanced with the sales. The inventory should also increase when sales are climbing so that inflation could be kept in check. There is a lack of growth in listings which will also result in a lack of supply in 2020, it is expected.
There is also the issue of mortgage credit which has caught the attention of the Bank of Canada, the Deputy Governor of the Bank recently noted in an address that the drop in mortgage rates had been a boost for the market and that many of the same factors that were present in the market about three years ago are being seen again, like tight supply, low interest rate and strong underlying demand.
Some other industry trends
The markets here are also better equipped to deal with the determinants of the pressures of inflation. The Bank of Canada is hopeful that some regulatory and other measures will be seen in place which will support the quality of new credit and will also help improve the buildup of imbalances in the housing market. Some regulatory measures are going to be credited the most and this will address housing price inflation with steps like the stress test which was put into effect in January 2018 so that uninsured mortgages and required borrowers could qualify at a higher rate, rather than the negotiated rate with the lender so that the possibility of a future hike could be taken into account.
Prime Minister Justin Trudeau had already directed finance minister Bill Morneau to review the tests and to make them more dynamic although it is still not clear how this is going to be done. Any changes which will be made will have to balance the needs of Alberta and the Prairies where housing markets are not performing well and that has to be balanced with regions where the demand is already showing signs of improvement.
It is seen that the labor market is performing well and there is a good demand for housing, with low interest rates which will become favorable factors for housing in 2020. The initiative of the federal government to help home buyers with shared equity mortgages and a review of the stress test is also bound to have positive signs. However, there are plenty of variables in real estate and it is going to be seen how all of this adds up.