Metro Vancouver housing prices will continue to rise after the COVID-19 pandemic, creating a drag on sales growth as homebuyers’ budgets shrink, according to the Canada Mortgage Housing Corp.’s spring outlook Thursday.
CMHC senior analyst Braden Batch predicted that Metro’s housing market will face the same housing affordability and supply-shortage challenges that existed pre-pandemic.
He said demand for housing in Vancouver last year went in two different directions: demand for home ownership expanded, and demand for rental housing receded.
The COVID-19 lockdown resulted in a major decline in the typical flow of migrants into the Vancouver region, especially very young adults and students, while lower mortgage rates triggered a burst of move-up and first-time buyers entering a market that was already experiencing dwindling inventories before 2020, added Batch.
“Vancouver’s housing market will adjust to reopening borders and development in fundamentals over the next three years,” said Batch in the report. “Buyers will face higher prices and see their budgets decline, while a flow of newcomers will place pressure on the rental market. In essence, the market will face the same sorts of affordability and housing shortage challenges that pre-existed the shock of COVID-19.”
Sales increased because more people had the budget to buy a house. However, he noted that once prices adjust, higher budgets will be required.
“In effect, first-time buyers must save a higher down payment even if they can carry a larger loan, and somewhere in the chain, move-up buyers require first-time buyers to unlock a down payment for their next home. Thus, once the pool of potential buyers with ready down payments is exhausted, higher prices will act as a drag on housing demand, and this will result in a contraction of sales activity,” he said in the report.
Sales will remain elevated into 2021 but will contract thereafter, he added.
Meantime, demand and price momentum in Victoria will extend into 2021, driven by low borrowing costs and renewed demand from out-of-town buyers and newcomers, before stabilizing by 2023, according to CMHC senior analyst Pershing Sun.
She said resale activities will continue to increase in 2021 before declining by 2023 as a result of slowly rising borrowing costs. Sun also noted, in the report, that prices will grow, but at a progressively slower pace over the next three years as competition among buyers tapers off.
Overall, the report forecasts that economic activity in Canada, as well as employment and net migration, will gradually return to pre-COVID levels over the 2021-to-’23 period, as broad immunity to COVID-19 takes hold and restrictions are lifted.
Late 2020 economic trends are largely expected to continue into 2021. Employment conditions will continue to recover, but the employment rate will remain below pre-COVID levels, the report said.
The five-year mortgage rate is expected to gradually increase but remain low to the end of 2023, according to the CMHC outlook.