The Canada Mortgage and Housing Corp. projects that home prices could equal the peak levels observed in early 2022 by the following year and could escalate to unprecedented heights by 2026.
In its latest housing market outlook released on Thursday, the agency highlighted that despite an increase in rental housing entering the market in 2023, the supply is anticipated to lag behind the demand, resulting in elevated rents and decreased vacancy rates in the forthcoming years.
CMHC’s chief economist, Bob Dugan, stated in a release, “Unfavorable financing conditions are expected to pose challenges for homebuilders aiming to initiate new rental projects in 2024.”
“We anticipate that by 2025-2026, lower interest rates, sustained government support, and policies promoting densification in urban areas should render more projects feasible.”
CMHC also expressed concerns about affordability in the homeownership market over the next three years, as decreasing mortgage rates and robust population growth akin to that of the 1950s in Canada are likely to stimulate a resurgence in home sales and prices.
According to CMHC, home sales plummeted by roughly one-third from their peak in early 2021 to the end of 2023, with prices declining by nearly 15 percent during that period.
“Throughout this period, the pool of potential homebuyers expanded due to robust population growth, increased savings, and higher incomes,” the report stated.
“As mortgage rates decline and economic uncertainty diminishes in the latter half of 2024, we anticipate a resurgence in buyer activity.”
This resurgence, CMHC noted, will also be driven by a shift in demand towards more affordable homes and markets across Canada.
While the agency predicts that sales activity from 2025 to 2026 will slightly exceed the past 10-year average, it is anticipated to remain below the record levels experienced from 2020 to 2021 due to the persisting high cost of housing.
CMHC also forecasts a decline in housing starts in Canada this year, followed by a recovery in 2025 and 2026, reflecting the delayed impact of higher interest rates on new construction.
A report released by the agency last week revealed that construction commenced on 137,915 new units across Canada’s six largest cities last year, a figure roughly consistent with that of the past three years due to a surge in new apartment developments.
On a regional basis, CMHC anticipates that Ontario and British Columbia will drive the national decline in housing starts this year, cautioning that developers may encounter difficulties in boosting apartment construction amidst challenges such as financing costs.
The agency expects the Prairie provinces to perform well, citing affordable home prices and a stronger economic outlook that is likely to attract homebuyers and job seekers, thereby stimulating increased construction.
In Quebec, housing starts are projected to increase but remain below post-pandemic levels following a sharp decline in new home construction last year.
CMHC noted that the Atlantic region is likely to experience less pressure on new home construction than it has since 2022 due to unusually strong migration, with starts in certain eastern provinces expected to remain historically robust but align more closely with weaker population growth.
This report by The Canadian Press was first published on April 4, 2024.
Sammy Hudes, The Canadian Press