The Canada Mortgage and Housing Corp. (CMHC) has released its latest housing market outlook, and it's raising eyebrows. According to the report, home prices could soon reach their highest levels since early 2022 by next year, with new record highs anticipated by 2026.
Supply and Demand Dynamics
Despite an increase in rental housing availability projected for 2023, the report suggests that supply won't keep pace with demand, leading to higher rents and lower vacancy rates in the coming years. Bob Dugan, the chief economist at CMHC, highlights that unfavorable financing conditions may hinder new rental projects in 2024. However, optimism remains for 2025-2026, with expectations of lower interest rates and government support making more projects viable.
Affordability Concerns
Affordability in the home ownership market is flagged as a concern for the next three years. This is due to declining mortgage rates and robust population growth, which are likely to stimulate a rebound in home sales and prices. Despite a 15% decrease in prices from the peak in early 2021 to the end of 2023, the report notes that the pool of potential homebuyers has grown, driven by population growth, increased savings, and higher incomes.
Sales Activity and Housing Starts
The report anticipates a resurgence in sales activity, driven by a shift in demand towards lower-priced homes and markets across Canada. Although sales activity from 2025 to 2026 is expected to slightly surpass the past 10-year average, it will likely remain below the record levels recorded from 2020 to 2021 due to housing affordability challenges.
Regarding housing starts, CMHC predicts a decline this year before recovering in 2025 and 2026, reflecting the lagged effect of higher interest rates on new construction. Ontario and B.C. are expected to drive the decline in national housing starts this year, while the Prairie provinces are forecasted to perform well due to affordable home prices and a stronger economic outlook.
Regional Outlook
In Quebec, housing starts are expected to grow but remain below post-pandemic levels after a sharp decline in new home construction last year. The Atlantic region, meanwhile, may experience less pressure on new home construction due to weaker population growth, although certain eastern provinces are expected to maintain historically robust starts.
Conclusion
The CMHC report offers valuable insights into the future trajectory of Canada's housing market. While challenges such as affordability concerns and supply-demand imbalances persist, the outlook remains cautiously optimistic, especially with anticipated shifts in policy and market dynamics in the coming years.