Can the housing market stay hot for the rest of 2021?

Immigration, the prospect of further government regulation, and Bank of Canada rate announcements will be some of the most significant factors in determining whether house prices in Canada continue their barnstorming upward trajectory in the second half of 2021, according to a prominent industry executive.

James Laird (pictured), co-CEO at CanWise Financial, told Mortgage Broker News that while the recent stress test increase would apply some downward pressure on the housing market, it could be offset to some degree by a return to regular levels of immigration in the coming months.

“Immigration’s a huge factor,” he said. “Many of the new Canadians who come here bring wealth with them, and high on their priority list is purchasing a home. That would add a bunch of new people to the pool of buyers.

“The net effect probably depends on how many people arrive and when, and their demographic from an income and wealth perspective. But the wealthier they are, the more they will be able to buy a home immediately as opposed to waiting a few years, getting settled and then purchasing a home.”

Last week, federal finance minister Chrystia Freeland described the “recent and rapid rise in housing prices” as a development that threatened the stability of the market as she announced a hike in the minimum qualifying rate for insured mortgages in line with their uninsured counterparts.

Laird said his feeling was that the red-hot market activity from the opening months of the year had already cooled somewhat, a factor that could heavily influence whether the federal government decides to intervene further during the remainder of 2021.  

“It does feel as though the heat of the market from the early part of the year has dissipated a little bit,” he said. “It’s still a strong market, but it’s not as wild as it was in the first few months of the year.

“If the market, at some point either this year or next year, gets too carried away, they will always reserve the right to implement more measures. It just depends on what the market does.”

Home sales in Canada hit an all-time record in March, with the 76,259 total representing an increase of over 75% on the same period in 2020. More significantly, the number of new listings more than doubled from the previous March, with over 105,000 new houses arriving on the market.

“As we got into March, the supply imbalance wasn’t as great as it was in the prior month,” Laird said. “That’s why we had record transactions across the country – there was strong demand, but also strong supply. Getting a little bit closer to equilibrium from a supply and demand perspective caused home price appreciation to slow off the ridiculous pace that it had been on.”

Laird said that the slowdown in month-over-month housing price increases was in some way inevitable in the current climate.  “At some point you naturally start to exhaust the pool of buyers who were looking to purchase this year,” he pointed out.

With the Bank of Canada’s last announcement on its overnight rate revealing that it had moved forward the date at which it expected to meet its inflation target – from 2023 to 2022 – much attention will be focused on its next statement, scheduled to land on June 09.

Laird said that while back-to-back revisions of its forecast were highly improbable, there was still a fair chance of the Bank changing those projections at some point in the coming months. “A key figure to look at in the next announcement is the direction the unemployment market is going,” he noted.

“The last announcement was filled with positive signs of the recovery across the board with one exception – slack in the labour market. That’s going to be a really important variable to keep an eye on as we try to figure out what the Bank of Canada’s policy will be going forward.”

MBN

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