Canadian housing market crash still unlikely says leading brokerage

Royal LePage expects relative stability for home prices but there could be a dip if the coronavirus pandemic lasts through the summer

Canadian housing market crash still unlikely says leading brokerage
Steve Randall

Despite a sharp rise in the share of Canadian consumers expecting real estate prices to drop over the next six months, one of the country’s leading brokerages is optimistic.

Royal LePage’s latest assessment of the housing market calls for relative stability for 2020, although it does of course depend heavily on the COVID-19 pandemic.

The brokerage says that, if the current stay-at-home restrictions are eased during the second quarter, then home prices could end the year relatively flat with a 1% aggregate increase year-over-year, to $653,800.

However, if the current measures remain in place through the summer, we could see a 3% year-over-year decrease in prices to $627,900.

This week’s Canadian Consumer Confidence Index leans to the negative outcome with less than 15% of respondents expecting rising prices compared to 41% anticipating lower prices, and 35% a hold steady.

But Phil Soper, Royal LePage’s CEO, says that, while sad that many young and part-time workers are most impacted by the sudden downturn brought about by the coronavirus outbreak, they are less likely to be those who would buy homes anyway.

"From our experience with past recessions and real estate downturns, we are not expecting significant year-over-year price changes in 2020,” he said. “Home price declines occur when the market experiences sustained low sales volume while inventory builds. Currently, the inventory of homes for sale in this country is very low, matching low sales volumes as people respect government mandates to stay at home.”

Distressed sales not reflective
Soper added that it is not correct to equate a “handful of transactions at lower prices” with real estate value.

“Distressed sales that occur during an economic crisis are a poor proxy for real estate value," he said.

With data indicating a sharp drop in home listings searches, showings, and transactions, Soper noted the weakness in the market currently and the risk ahead.

"If the fight against the coronavirus requires today's tight stay-at-home mandates to remain in place for several months more, with no semblance of normal business activity allowed, temporary job losses will become permanent and consumer confidence will be harder to repair," he said. "This would place downward pressure on both home sales volumes and prices.