Although housing markets in Canada’s major markets look healthy, this year’s turbulence will likely result in fewer housing starts in 2021, says a new report from Altus Group.
In Q3-2020, there were 237,300 housing starts in all of Canada, according to Canada Mortgage and Housing Corporation statistics, which is a 22.2% increase from Q2-2020. Home sales also surged by 93% during the same period, which brought home prices up 4%. While all of that indicates robust economic recovery from the COVID-19 pandemic-induced lockdowns during the spring, deceleration is on the horizon.
“The sharp economic recovery, which coincided with the easing of restrictions in the second quarter, has since stalled and is now expected to be steady but shallow through to 2021,” said the Altus report. “The second wave of COVID-19 that began in the fall, and the unavailability of effective vaccines before mid-2021, are hampering growth.
“Robust housing demand continued to rally new home sales and starts through to the end of September. Together with low inventory and supply bottlenecks, house price appreciation remained solid.”
Housing starts should surpass 2019’s total, but new home sales decreased, especially in the new condo segment, and the Altus report says that will result in fewer housing starts in 2021. Moreover, even though interest rates are historically low, and are expected to remain that way for the next two years, rising home prices will result in affordability woes and soften demand.
“Additionally, jobs and incomes are not expected to grow as firmly as previously expected next year, while the government’s massive income support programs are likely to be wound down,” said the report. “Financial institutions may also tighten credit standards next year with any deterioration in the labour market and household balance sheets.”
According to Peter Norman, Altus Group’s vice president and chief economist, and the author of the report, this autumn’s second wave of spiking COVID-19 infections will result in weaker job numbers going into Q1-2021, although it won’t be nearly as bad as it was this past spring.
“But the housing market will generally have weaker conditions because of weaker migration, and some underlying economic factors,” Norman told CREW. “We have Ontario seemingly weakening quite a bit into 2021, but, in fact, it’s really going back to around where it’s been for a while. In Ontario, the 10-year average is about 70,000 housing starts, and last year we had just under 70,000 housing starts on the back of a fairly strong economic performance. Next year, because of the softness we expect through the beginning of the year on sales, we expect the pace of projects will be a little bit slower, and then we’ll see housing starts go back to a normal 70,000 range.”
The report noted that reduced immigration will likely curtail housing demand in Toronto’s condo sector to start 2021, but single-family housing demand will remain strong.
Montreal was severely impacted by the COVID-19 shutdowns, but housing starts have nevertheless been resilient this year. Residential construction in the city rebounded very quickly when restrictions were eased, however, housing starts only rose by 1% in the first nine months of 2020. New condo sales in the city declined last year and this year, which could result in fewer housing starts after existing projects wind down.
New condo sales in Vancouver have been weak in 2020, resulting in fewer housing starts this year—they’re down 33%—and next year, according to Altus. However, resale homes increased by 17%, and in conjunction with low inventory and healthy demand, housing starts won’t decline by too much in 2021, especially because home prices have continued rising in the city.
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Written by Canadian Real Estate Wealth.
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Canadian Real Estate Wealth