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The following 2020 recap as well as a 2021 forecast, including a conversation with Michael Shaw and Shaun Cathcart is from CREA CAFÉ – Canadian Real Estate Association.

Here are some numbers to help frame this conversation:

551,000 – residential sales over all Canadian MLS® Systems in 2020—a new annual record.

Think that’s a lot? It’s really not. When you adjust home sales to account for population growth, we’re still below 2005, 2006, 2007 (by a lot) and 2016.

But activity is on the rise. Here are the numbers to think about as we begin 2021:

714,500 – December 2020 sales activity on a seasonally adjusted at annual rates (SAAR) basis.

December was another all-time monthly sales record. Just as a thought exercise, if monthly sales activity were to stay where it was in December right through 2021, we’d have more than 700,000 sales in 2021. Compare that to the 2020 record of about 550,000! To be clear, we aren’t expecting 700,000 sales in 2021. The point I want to make here is things could really cool off from where they are currently and 2021 would still be another record year. It shouldn’t be all that hard to beat “the year with no spring market.” The challenge we have in 2021 may be “the year with not enough homes for sale.”

99,265 – the number of active listings on all Canadian MLS® Systems as we were all singing Auld Lang Syne (distantly) on January 1. Want to know when the last time this number was under 100,000? Unfortunately, our database for active listings only goes back three decades so I can’t say. Given population and housing stock growth over all that time, the fact we currently have the lowest level of active supply on record is a big deal. Five years ago, it was 250,000.

OK, so that’s record setting sales (right now) and record low supply (right now). Put them together and you get one of our favourite stats, the number of months of inventory. As of New Year’s Day, there were 2.1 months of inventory for all of Canada. The longer-term normal or balanced level for this metric is 5.2 months. But how does that compare with history? Well, we had a housing boom in the early 2000s—prices basically doubled from about 2002 to 2007. Months of inventory then were a little under four. Then, following the financial crisis for much of the 2010s things were sort of boring, with months of inventory a little over six. That’s how you get an average of five. Right now, it’s two!

What does it all mean? Well, the stat to watch in 2021 will be new listings, particularly in the spring. How many existing owners will put their homes up for sale?

Even though sales are already setting records, we know demand is much stronger than those sales numbers suggest because we see it overflowing increasingly on the price side. A listing with 10 offers still only results in one sale but a whole bunch of upward price movement. That’s not a prediction. It’s already happening.

How the current situation plays out in the sales and price data will depend on how many homes become available to buy in the months ahead. Our experience suggests that we might see a bit of a head-fake slowdown in sales to start 2021. Don’t be fooled. With markets as tight as they are, there is less carry-over of existing supply into the New Year, so things tend to quiet down in January and February as we wait for the new spring listings. It’s hard to know how many of those there will be, and how many buyers are out there waiting to pounce, but I’ll go on record saying it will probably be headline-grabbing however it plays out.

As a final thought, ideally, we’d like for households to be able to find and acquire the homes that best suit their needs, for people to be able to move around when they want to, and for housing to remain affordable. But the fact is, we’re facing a major supply problem in 2021.

Join us for our next Instagram Live, scheduled to take place Monday, Feb. 1 on CREA’s Instagram page, where I will answer your questions and take part in a candid and casual conversation about some of the country’s more interesting markets. Make sure to send your questions to crea-comms@crea.ca or by checking our social media accounts.

The following is an analysis by Robert Hogue is a member of the Macroeconomic and Regional Analysis Group, with RBC Economics. He is responsible for providing analysis and forecasts for the Canadian housing market and for the provincial economies. His publications include Housing Trends and Affordability, Provincial Outlook and provincial budget commentaries. Should you wish more detail click here to be taken to the article with interactive charts within the RBC.

In the end, the rollercoaster that was 2020 left Canada’s housing market more or less where it started the year: full of bidding wars, escalating prices and exasperated buyers unable to find a home they can afford. The pandemic changed some dynamics—it drove many buyers to the suburbs, exurbs and beyond, ground immigration to virtual halt, triggered a downturn in big cities’ rental markets and caused households to build up their savings—but it didn’t dial down the market’s heat. We expect this to largely continue in 2021. We see little that will stop activity or prices from reaching new heights in the year ahead. We forecast the national benchmark price to rise 8.4% to $669,000 and home resales to increase 6.5% to 588,300 units with almost all provinces showing gains. Yet we also expect cooling signs to emerge, which will come into fuller display in 2022. The main restraining factors will be a lack of supply, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing. Of course, we can’t exclude the possibility of a rougher landing—either in 2022 or earlier—so long as the pandemic remains a threat to our economy though large-scale vaccination campaigns should mitigate that risk.

Property values have more upside

Not only did home price increases stay on track throughout the pandemic, the pace quickened. The aggregate benchmark price increased 8.5% in Canada in 2020, or almost five times the rate of 1.8% in 2019. We expect this solid momentum to be sustained in 2021 with a gain of 8.4%, underpinned by tight demand-supply conditions in most regions of the country. We see price support softening gradually over the course of the year, though, setting the stage for a more modest 3.9% appreciation in 2022.

Gains will be strongest in Central Canada, BC and parts of Atlantic Canada

We project price trends to stay firm in most regions of the country, taking property values up 9.6% in Ontario, 9.0% in Quebec, 8.6% in BC, 8.3% in Nova Scotia and 9.5% in PEI—building on 2020’s solid gains. The outlook for the Prairie Provinces remains comparatively weaker. The economic challenges facing the region will continue to weigh on prices though we expect an increase in Alberta (0.9%) after nearly five years of decline. Newfoundland and Labrador is the only province for which we forecast prices to drop in 2021 (-0.4%)—for the sixth year in a row. It’s important to note the upswing in property values in BC, Ontario and Quebec isn’t just a big-market story. The pandemic has heated up prices in smaller markets too. In fact, we could see stronger gains in smaller markets than in core urban areas because downtown condo prices are likely to stay flat through much of 2021.

Buyers will keep bidding up prices because inventories are scarce…

Low available supply is the reason property values will continue to go up. Strong demand pre-pandemic and the historic market rally since summer have cleaned up inventories in many parts of the country. Relative to the 10-year average, active listings had plummeted between 50% and 61% in Ontario, Quebec and most of Atlantic Canada, and 29% in BC by the late stages of 2020. And that’s despite a surge in downtown condo listings since spring in Canada’s largest cities. With so few options to choose from (outside downtown condos), buyers will continue to compete fiercely. Buyers in the Prairie Provinces, and Newfoundland and Labrador, however, will feel less pressure to outbid each other given supply isn’t quite as scarce in these markets.

… and sellers are calling the shots

Viewed from another angle, sellers enter 2021 holding a very strong hand when setting prices in most of Canada. We see this continuing during most of 2021. We expect provincial sales-to-new listings ratios—a reliable gauge of price pressure—to generally stay above the threshold (0.60) where sellers have historically yielded more pricing power. In several cases (including BC, Ontario and Quebec), ratios are well above the threshold, providing plenty of buffer against demand-supply conditions flipping in favour of buyers.

Supercharged demand to drive up home resales to a second-straight record

Despite the pandemic virtually stalling activity last spring, Canada’s housing market likely had its strongest year ever in 2020. We estimate home resales rose nearly 13% to 552,300 units nationwide, surpassing the previous record of 539,100 units set in 2016. The spring setback was more than made up by surging activity in the summer and fall. We project resales to be even stronger overall in 2021, reaching 588,300 units. Historically low interest rates, changing housing needs, high household savings and improving consumer confidence will keep demand supercharged.

Cooling signs will emerge… eventually

The strong annual tally will mask a gradual cooling in the market through the year, however. We believe the lofty levels of activity attained at the end of 2020—nearing 700,000 units on an annualized basis in the fourth quarter—won’t be sustained, and some moderation will set in over the course of the year. We expect low supply to become a growing constraint, pandemic-induced market churn (resulting from changes in housing needs) to wane, and a slight rise in longer-term interest rates and material erosion of affordability to cool demand by a few degrees. Low immigration levels could also play a role. Our view is these factors will rein in resales to something closer to 515,000 units by the end of the year—still solid but down from the stratosphere.

All provincial markets but one (PEI) to stay in growth mode

Home resales rose in all provincial markets in 2020—the last time this happened was in 2004. We expect a near-repeat performance in 2021 with only PEI bucking the trend (with resales remaining unchanged close to a record level). Still, rates of increase will generally slow. We project activity in BC and Alberta to grow the most, at 17% and 12%, respectively. In both cases, this will reflect further recovery of ground lost years earlier. These provincial markets had slumped prior to 2020. Forecasted gains are more modest for most other provinces, ranging from 1.2% in Manitoba to 5.8% in Nova Scotia. We believe supply constraints will be a particular issue holding back the pace in Central Canada and most of the Atlantic Provinces.

High sensitivity to interest rates poses a potential risk…

The decline in interest rates since last spring gave a sizable break to buyers by lowering debt service costs. This has undoubtedly attracted more buyers into the market. We expect interest rates to stay low though we see long-term rates starting to creep slightly higher this year. It’s important to remember that when rates are at rock-bottom levels like they are today, it doesn’t take much of an increase to jack up debt service costs. So the slightest rate increase could compel many buyers to exit. Any sudden, larger increase would pose a risk to the market.

…and so do low immigration levels

There are several other risks to be mindful of. The pandemic is obviously a top one, having the potential to severely disrupt activity. The good news is mass immunization is in sight, which should mitigate some of that risk. Slumping immigration, if it continues, could sap housing demand. To date, the plunge in immigration has primarily affected the rental and, to a lesser extent, condo markets in Canada’s largest cities though the impact could spread to other housing categories and markets. Strong immigration has been a huge source of housing demand over the past decade. Finally, should signs of market overheating emerge, this could prompt policymakers to intervene by tightening rules or imposing new restrictions in order to cool things down.

CMHC reports that the seasonally adjusted annual rate of housing starts for all areas in Canada fell 12.2 per cent. Details can be found at CTVnews.ca.

Interesting figures. Of course remember they are averages and don’t take into account the renewal or decline of a neighbourhood or specific circumstances particular to your house. For those give the Molly & Claude Team a call, we can set up an appointment meet with you, see your property and evaluate each factor according to their specific merit.

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