The number of home resales in Toronto decreased by 47 per cent in July compared to last year, while the number of new listings dropped roughly 4 per cent. However, despite Canada’s real estate market slumping, experts say Canada’s real estate market will not collapse.
According to new Statistics Canada statistics, home prices rose just 0.1% between June and July, which is the smallest gain in more than two years and significantly less than the 7.6% average annual inflation rate for that month.
Despite experts’ predictions that the housing downturn may be the worst in four decades, they suggest two factors prevent this downturn. These factors are immigration and more households due to Canadians’ preference for living alone or in smaller groups.
Expert opinions on Canada’s real estate
According to Kate Choi, an associate professor of sociology at Western University, if the rate of immigration and current changes in household formation continue, we will probably not see a housing crash over the mid-to-long term.
In addition, a crash refers to a scenario where prices drop by around 30% and housing demand completely disappears, explains Carrie Freestone, an economist at RBC.
The bank predicts benchmark prices would decline by 13% during this correction period, far less than the 30% threshold for a crash. Freestone added that it would not make up for or offset the gains made during the pandemic.
Future demand for homes would rise
A recent RBC analysis published on August 17 shows that the average size of a Canadian home will decrease by 0.02 individuals between 2016 and 2021. During this time frame, new households were created nationwide due to Canadians, particularly young adults starting new smaller families and giving up multi-generational living.
In general, more households suggest that these households will require more housing in future, according to Choi. Therefore, that will ultimately put increasing pressure on property prices.
This situation will increase housing demand and “contain a housing spiral” together with the federal government’s goals to welcome a record 1.3 million new permanent residents by 2024, adding around 555,000 additional households.
As individuals get used to the new interest rate levels, Royal LePage CEO and President Phil Soper anticipate an improvement in the home market in the spring of 2023. According to Soper, the market will quickly rebound because there is still unmet demand from the early stages of the pandemic.
Impact of the Housing Correction
Due to Ontario’s Fair Housing Plan and the new federal mortgage stress test, there was significant housing correction between 2017 and 2019, he added. However, because of the low-interest rates and a large amount of money households had saved up before the pandemic caused, the first wave of demand to unleash.
According to Soper, the market never got a chance to fully catch up or meet all the organic demand from that initial correction when this housing correction cycle started in February, partly because of higher interest rates.
The report’s conclusions come with a warning, according to Choi, as more young adults may decide to stay with their parents longer owing to the rising cost of living, which would result in fewer new households and a further decline in demand and housing prices.
Source: Toronto Star