In its recently released 2020 Housing Market Outlook, CMHC predicted that housing starts will be slashed by at least half this year as prices and sales on existing homes plunge due to the economic shock from the coronavirus pandemic. The forecast – which is admittedly “on the pessimistic side,” according to CMHC chief economist Bob Dugan – predicts that housing prices will fall between 9 and 18 per cent from pre-pandemic levels. And sales volumes are expected to fall between 19 and 29 per cent as potential buyers stay home instead at a time when social distancing makes it difficult to look at homes and uncertainty makes them more inclined to wait before a big purchase.
One thing that is important to note, is the wide difference between the optimistic and pessimistic scenarios presented in the CMHC report, as CMHC has based its evaluation on the more pessimistic half of the Bank of Canada forecast. The gap between the best-case and worst-case scenarios presented here, reflects the extreme uncertainty caused by the pandemic. Not to mention, CMHC’s worst-case scenario also assumes that a second wave of the virus and subsequent shutdowns will occur.
Stu Niebergall, CEO of the Regina & Region Home Builders’ Association says, “The harsh forecast released by CMHC really only reflects a “best guess” of what might happen in the housing market over the next year. Their predictions come off a bit like someone running into a room screaming “FIRE!” when things are hot, but no one has seen any smoke or flames yet.”
Essentially, it is too early and there is still way too much uncertainty involved in order to know if the CMHC predictions accurately reflect what is to come. Housing prices have remained relatively stable during the pandemic so far as supply and demand moved in lockstep with a coinciding drop in new listings and potential buyers. This explains why home prices haven’t cratered in the face of low levels of sales activity. If national average housing prices do begin to fall, this may be attributed to the fact that people aren’t going to be listing their beautiful single-family homes right now. There has already been a decrease in new listings (particularly of the more expensive homes) contributing to a massive disturbance in the sample. As a result, average listing prices may decrease but sales activity may be expected to pick up again soon as more and more people take advantage of extremely low interest rates to purchase smaller homes, multifamily homes, and condominiums.
Another point worth mentioning is that our nation’s “housing market” is extremely regionally diverse. Housing is a very local issue. Regional disparities in economic conditions mean housing prices will experience varying impacts from province to province and from city to city. Restrictions on construction activity which have led to a sharp decline in housing starts in other Canadian provinces were not implemented in Saskatchewan. In fact, the newly introduced PST rebate on new home construction which was brought in by the Government of Saskatchewan in March 2020, has acted as an important stimulus. This has softened the blow on housing starts for our local industry. In Regina, as we begin to recover in the wake of COVID-19, we are starting to see sales activity on the upswing once again. New Home permits issued in April and May were double the same time last year. In Saskatoon, we are seeing an increase of permit activity when comparing to last year, as high as 30% for single family homes.
Chris Guérette, CEO at the Saskatoon & Region Home Builders’ Association suggested, “Ultimately, CMHC’s forecast underestimates the resilience of the housing sector during the pandemic so far. Their predictions assume that sellers would simply accept a drastic price reduction on the sale of their home. We believe that it will be difficult to find many sellers to accept the kind of discount on their listings that would be necessary to force average national housing prices to decrease as quickly and as drastically as CMHC predicts.”
For those who are confident in their employment status, want to access homeownership or are interested in exploring the range of housing options, this could be the right time to do so. Interest rates are forecasted to remain low and with a slower market, builders’ pencils are very sharp.