Forecasting Canada’s Housing Market: A Closer Look at What’s Ahead

The landscape of Canada’s housing market is shifting, with recent projections from the Canada Mortgage and Housing Corporation (CMHC) sparking interest and concern amongst homebuyers and investors alike. According to the latest housing market outlook, home purchase prices could soon match the peak levels observed in early 2022, with the potential to reach new highs by 2026. This forecast prompts a deeper examination of the factors influencing the housing market and what buyers might expect in the coming years.

The Current State of Home Sales

As a foundation for understanding the future, it’s essential to analyze current market performance. CMHC data reveals a striking decline in home sales, with a nearly one-third drop from their peak in early 2021 to the end of 2023. Concurrently, home prices have experienced a significant decrease, falling by approximately 15% during the same period. However, amidst this downturn, the report highlights an important aspect: the number of potential homebuyers has increased due to robust population growth, increased savings, and higher income levels.

As CMHC economist Michael Mak pointedly indicates, these trends suggest that while home prices may be down currently, demand is poised to rebound. "As mortgage rates and economic uncertainty decrease in the second half of 2024, we expect buyers to start returning to the market," he says. This shifting sentiment hints at a potential revitalization in both sales and pricing mechanisms.

Affordability Concerns

Despite the anticipated resurgence in home purchasing activity, affordability remains a pressing concern. CMHC’s report underscores that for the next three years, the affordability of home ownership will be a significant issue, primarily driven by declining mortgage rates and the strongest population growth Canada has seen since the 1950s. Buyers, especially first-time homeowners, may find it increasingly challenging to navigate this landscape.

Moreover, the growing demand for more affordable homes will likely shift market dynamics, leading to greater competition for lower-priced properties. This may exacerbate affordability challenges, especially in high-demand areas.

Future Construction Trends

The long-term dynamics also spotlight the anticipated changes in housing starts and construction activities. CMHC forecasts that housing starts in Canada will decline initially before recovering in 2025 and 2026. This anticipated decline can be attributed to the lagged effects of higher interest rates on new constructions.

In 2023, construction began on 137,915 new housing units across Canada’s six largest cities, reflecting a consistent output over the past few years. However, CMHC warns that despite the new rental housing coming into the market in 2023, the anticipated supply will likely not keep pace with rising demand, thus leading to increased rents and lower vacancy rates.

Bob Dugan, CMHC’s chief economist, emphasizes that unfavorable financing conditions are expected to pose challenges for homebuilders, especially concerning new rental projects in 2024. However, optimistic projections suggest that by 2025-2026, decreasing interest rates and various supportive policies will catalyze more viable construction projects.

Regional Variations and Predictions

Examining the regional landscape provides invaluable insights into the housing market’s future. Ontario and British Columbia are expected to drive the overall decline in national housing starts this year, contending with not only financing challenges but also high demand. Conversely, the Prairie provinces are forecast to perform better due to affordable home prices and a strengthening economic outlook, likely attracting new homebuyers and jobs.

Quebec may see growth in housing starts, albeit below post-pandemic levels, reflecting the previous sharp decline in construction. Meanwhile, the Atlantic region is projected to experience a stabilization in new home construction parallel to the more robust migration experienced in recent years.

B.C. Housing Minister Ravi Kahlon expressed confidence that his province will "out surpass" CMHC’s projections, citing government measures that could influence outcomes positively. "I do believe B.C. will continue to lead the country in housing starts," he remarked, indicating strong local market conditions despite broader national trends.

Conclusion: Navigating a Changing Landscape

As we peer into the future of Canada’s housing market, it’s clear that while challenges abound, especially related to affordability and construction lag, opportunities are also on the horizon. The interplay of rising demand, shifting buyer profiles, and government interventions may shape a new era for housing in Canada. Both prospective buyers and investors should remain vigilant, informed, and adaptable to navigate this unpredictable landscape effectively. CMHC’s insights not only serve as a guide but also highlight the importance of understanding market dynamics in one of the most critical aspects of Canadian life—housing.