CMHC feared falling prices but they soared instead

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This article was published 17/12/2020 (2095 days ago), so information in it may no longer be current.

While in the grip of the pandemic-related lockdown earlier this year, the country’s national housing agency forecast that house prices could fall by nine per cent to 18 per cent before recovering in 2021.

In Winnipeg and across the country, that has not been the case.

CMHC chief economist Bob Dugan said that across the country demand for housing, with relatively few new listings, pushed prices higher in many regions.

CMHC is working on a new forecast, Dugan said, which will take the recent real estate strength into account.

“We thought that the third quarter was going to be weaker than it was. Clearly as the economy reopened, there was a very strong rebound in terms of employment and overall economic growth,” Dugan said in a news conference.

“But the housing market mirrored that, which is a bit of a departure from what we’ve been forecasting.”

According to Canada Mortgage and Housing Corp., the Winnipeg market is showing a low degree of vulnerability to overheating whereas 10 out of the 15 largest cities in the country were categorized as moderate to high level of vulnerability.

But having said that, Peter Squire, senior market analyst at Winnipeg Realtors Association said there are many neighbourhoods all across the city that are approaching that condition in that sales are close to outstripping new listings, which is driving prices up.

After the entire market shut down in March and April, sellers were reluctant to put their homes on the market, but low interest rates and pent up demand sent buyers back enthusiastically.

Sales records have been broken every month since June in Winnipeg and the ratio of sales compared to the number of new listings is getting dangerously high.

Squire said in November there were 868 new listings of single-family homes compared to 823 sales, a ratio of 95 per cent for the month. The CMHC’s threshold for vulnerability is 85 per cent.

Squire said listings going into December of this year were 50 per cent less than November 2019.

“For the past 10 years we have typically had between five and six months of inventory (of homes for sale on the market). Now we have gotten down to two months,” he said. “What we are going to need to see early in the new year is a number of new listings flooding back onto the market from those people who stayed on the sidelines in 2020.”

Considering there is little likelihood of interest rates increasing from the current historic low levels, Squire said those previously reluctant sellers should have more confidence in the market especially seeing the enthusiastic demand from buyers.

CMHC reported a seven per cent year-over-year increase in average selling price in Winnipeg, which would be characterized as low evidence of price acceleration.

While there were several months through the summer and fall where prices were up 10 per cent, Squire said the annual average price increase for 2020 will come in at about five per cent.

The CMHC report said the jump in home prices seen in many cities this summer and fall was beyond what could be justified by Canadian income levels and population growth.

But CMHC analysts were not willing to forecast any further trends because of the uncertainty over outcomes from ongoing COVID-19 pandemic.

For instance Heather Bowyer, CMHC’s senior analyst for the region, said overbuilding has been detected in the Winnipeg market in previous quarters, but at the end of the third quarter the inventory of unsold new homes was 442, a decrease of 28 per cent compared to the same time period last year. It was the lowest inventory level since the third quarter of 2017.

 But Dugan says CMHC continues to expect “headwinds” coming for home prices, citing ongoing shutdowns from COVID-19, and mentions of potential economic contractions by the Bank of Canada.

“I think there is still downside risk that could result in some softness and weakness in prices going ahead,” he said.

— with files from The Canadian Press 

 

martin.cash@freepress.mb.ca