Housing sales, prices and starts across Canada will plunge this year and stay muted for at least a year, with the country’s western provinces taking the worst hit, according to Moody’s Analytics.
Other analysts, however, see a briefer, shallow downturn that could reverse as early as June.
“The COVID-19 pandemic along with the collapse in oil prices will create a perfect storm this year for both home sales and residential construction,” according to Abhilasha Singh, a Moody’s economist who wrote the April 30 Canada Housing Outlook.
The negative effect will be felt acutely in the West because of its economic makeup, the report states.
“British Columbia is most exposed in terms of leisure/hospitality and trade, while the Prairie provinces – which were already dealing with softening demand for energy – are most vulnerable to the collapse in oil prices,” Singh said.
Moody’s is forecasting a 15% contraction in the national baseline GDP in 2020’s second quarter compared with a year earlier and a doubling of the unemployment rate to 10%. This will cause housing starts to fall to 145,000 annualized units by the end of 2020 compared with 210,000 in early 2020.
While the report highlights the “extraordinary measures” taken to lower lending costs, including slashing the Bank of Canada interest rate to 0.25% in March and a subsequent reduction in the five-year mortgage to below 3%, it warns that homebuyers, worried about job losses, will remain sidelined.
“Not even lower interest rates will be enough to save the housing market,” Singh said.
As a result, Moody’s expects Canadian home prices to suffer a peak-to-trough decline of approximately 10%.
“As the outlook begins to improve in early 2021, house prices are expected to rebound,” the report notes.
Nationally, the composite house price index is forecast to decline 2.7% this year and 3.6% in 2021, but increase in 2022.
In comparison, Metro Vancouver home prices are forecast to drop 4.2% this year and a further 6% next year and continue to decline by 2% in 2022 before a tepid recovery three years from now.
Calgary could suffer the worst house price decline in Canada. Housing sales in the Alberta city plunged 63% by mid-April compared with a year earlier, according to the Calgary Real Estate Board and RBC Economics.
Moody’s predicts that Calgary home prices will drop 8.3% this year and 8.8% in 2021, though it projects a potential double-digit price increase by 2023.
RBC Economics and the Canadian Real Estate Association (CREA) forecast a shallower and shorter downturn in the housing market due to COVID-19 and its trailing economy malaise.
The CREA expects to see housing sales returning to a strong pace in 2021.
“This will be a temporary shock,” agreed Robert Hogue.
The member RBC Economics’ macroeconomic and regional analysis group added that the recovery could start as early as mid-2020.
“We expect stronger activity to resume once social distancing orders are relaxed. Our baseline assumption is some time in June. Exceptionally low interest rates will help spur the recovery,” Hogue said.
“Our current view is the recovery will stretch into 2021 in most markets. Odds of a major price drop are still low.”
The exception to this rosy scenario is the Prairies, Hogue warned.
“The plunge in crude oil prices are poised to further drive [Prairie home] prices lower.” •