Canada Housing Market Predictions For 2021: Top Expert Forecasts

After hockey, Canada’s favourite national pastime has to be making housing market predictions. 

It seems like every month we have different experts weighing in with their own predictions for Canada’s housing market, and it’s hard to keep track of who’s saying what. 

But given that buying a home is usually the biggest financial transaction people will make, knowing where Canada’s housing market is headed is awfully important.

Of course, we don’t know what’s going to happen with the housing market (if we did we’d be retired on a beach somewhere sipping margaritas), but we can compile what the experts are forecasting. And that’s exactly what we’ve done in this piece documenting top expert forecasts for Canada’s housing market in 2021. 

Let’s start with the first question everyone wants to know...

Will Canada’s housing market crash in 2021: What The Experts Say

Some analysts are sounding alarm bells about a bubble in Canada’s housing market, citing price increases of more than 30% year over year in some markets.

David Rosenberg

Bay Street vet and economist David Rosenberg, who predicted the housing crash in 2008, said in Spring 2021 that Canada’s housing market was in a bigger bubble than that facing the U.S. prior to the subprime mortgage crisis.

“I’m taking a look at all the metrics I had in my hands when I called the housing bubble in 2005 and 2006 in the United States. I was looking at home price-to-rent ratios, I was looking at home price-to-income ratios, I was looking at the extent to which the household sector was overexposed to residential real estate on their balance sheet,” Rosenberg told BNN. “I’ve got news for you: the numbers in Canada, on all the metrics, are higher now than they were at the peak of the U.S. housing bubble 13 years ago.”

Robert Kavcik, BMO economist

BMO Senior Economist Robert Kavcik said in an April 2021 report that at least some segments of Canada’s housing market “might be ready to crest soon” and that it was “not hard to see a scenario” where buyers are “faced with years of negative equity.”

Robert Hogue, RBC economist

RBC economist Robert Hogue has warned that the housing market is overheated and people’s expectations for price growth have become unrealistic:

“Overheated markets threaten to destabilize the economy down the road if or when a correction occurs, with possible heavy costs for governments. The threat is particularly potent because excessively high price expectations are widespread. Canada hasn’t had a market overheating of this scope since the late 1980s.”

Tiff Macklem, Bank of Canada Governor

Bank of Canada Governor Tiff Macklem says that he sees “worrying signs” in Canada’s housing market and that Canadians are stretching and taking on too much debt to buy their home.

At the same time, Macklem said that the Bank of Canada did not plan to raise interest rates in 2021 and the earliest rate hikes would come in the second half of 2022. 

Canada Mortgage and Housing Corporation

The CMHC, Canada’s housing agency, said the country’s housing market was showing “signs of overheating” and faced a “moderate” degree of vulnerability. The CMHC says urban centres like Toronto and Ottawa are the most vulnerable to a correction.

David Fleming, Toronto realtor and writer

David Fleming runs a popular real estate blog focused on the Toronto housing market, and he strongly disagrees with the idea that the market is headed towards a crash anytime soon. 

He argues that “supply is low and will remain low. Demand is high and will remain high. And in those two sentences, I give you my reasoning for why the market is where it is, and why it will stay here.  You don’t need a top economist to write a book on this.  You just need to simplify the analysis and look at the very most basic tenets of what makes a market.”

Canadians themselves

According to a Nanos Research poll from March 2021, 6 in 10 Canadians believe housing prices will go up over the next 6 months. That’s the highest level recorded since the company began surveying this question in 2008.

The Case For A Canadian Housing Market Crash in 2021

Let’s sum all this up: what’s the case for a Canadian housing market crash in 2021? 

Start with the disconnect between income and home prices. Between 2007 and 2017, home prices have increased by 69.1% while incomes have grown by just 27.6%.

In the past year, the average home price has surged from $544k to $716k. In expensive markets like Toronto and Vancouver, average prices are well above $1 million. Even smaller markets, like Halifax, have seen large price gains. Resale prices there are now at $474k, a $121k increase. 

People are also taking on record mortgage debt to fuel all this buying. In Q4 2020 Canadians borrowed $34.9 billion for mortgages. Household debt as a proportion of income is now at 175%, meaning for every dollar of income people have they owe $1.75. 

Given that, here’s a story about how this plays out to drive down home prices: lots of debt might be okay now while interest rates are low because debt is cheap. But interest rates will inevitably rise, and when they do people will be unable to cover the cost of the new debt they have taken on. People with large mortgages now will seek to cash out before they’re forced to renew at higher rates, flooding the market with new supply. There won’t be enough new buyers to absorb the demand, sending prices down. 

Couple that with people abandoning remote work in smaller towns after the pandemic and record new housing construction, and you get the makings of a housing market fall.

The Case Against A Canadian Housing Market Crash in 2021

There’s two sides to every story, and we can also make a compelling argument that the housing market is nowhere near a crash. 

Why? Because while interest rates could rise, they aren’t likely to rise enough to threaten people’s ability to service their debts. Banks already apply a “stress test” to ensure people could still pay their mortgage if rates rose to 4.79%. Rates would have to rise significantly to pass this point. 

Beyond that, there’s no indication that enough supply will be built to meet even existing demand, let alone new demand that will be created once immigration increases post-pandemic. Governments are not building affordable housing anymore, nor are they changing zoning rules to allow for more housing in urban cores. 

In fact, the only policies governments seem comfortable pursuing are those that increase demand, like the First Time Home Buyer Incentive. Recently, a government official said that they would not want to see home prices fall at all.

With interest rates likely to stay low, more demand than supply, and government policies aimed at increasing demand without growing supply, the fundamentals of the housing market suggest not only will there be no crash in 2021, but prices will continue to rise. 

The Bottom Line: Will Canada’s housing market crash in 2021

Like we said, we can’t predict the future. Most experts and analysts seem to agree that the extreme price increases we have seen over the past year are not sustainable, but that doesn’t necessarily mean that prices are going to crash or even decline modestly. Instead prices could grow more slowly or plateau. 

That said, wery few, if any, analysts are predicting a crash of housing prices this year given the Bank of Canada’s commitment to keeping interest rates low until at least the second half of 2022. 

We could also see regional variances based on local economic conditions. If people who left cities at the start of the pandemic return in large numbers, home prices in smaller towns and cottage country could fall while prices in cities rise. Similarly, prices in Toronto could increase further as economic recovery takes hold, while cities like Calgary, which have suffered economically, remain lower.

What we do know for certain is that real estate and an expensive housing market is making up an ever growing share of Canada's economy, and this may not be healthy. The cost of owning a detached home in Canada now consumes 55% of the average household's income and residential investment makes up 9% of total economic output. That means any downturn in housing threatens the economy as a whole. 

Regardless of what happens with the housing market, Canada would be better off diversifying its economy away from a real estate market that many feel is already overheated.