COVID-19 intensified ongoing housing market trends – RBC

Affordability eroded at an uneven pace across Canada, RBC says

COVID-19 intensified ongoing housing market trends – RBC

While housing affordability and sales trends have been “remarkably similar” across Canada over the last few quarters, the pandemic ended up amplifying already existing regional divergences, according to RBC Economics.

These trends are feeding off the “intense market heat” stemming from the market momentum seen during the gradual economic reopening earlier this year, said Robert Hogue, senior economist at RBC.

“Homebuyer demand is supercharged and inventories are near historical lows in virtually every market, creating intense competition between buyers and pressured prices up. These conditions have widely eroded housing affordability in the past year,” Hogue said.

However, the deterioration has been more apparent in the least affordable markets (particularly Toronto), Hogue said.

“More specifically, they’ve put Toronto and other southern Ontario markets in even less enviable affordability positions relative to the rest of the country, whereas the relative picture generally improved elsewhere, especially in Atlantic Canada and the Prairies,” Hogue said. “These trends are poised to keep driving some Ontario buyers toward more affordable regions of the country.”

Read more: Canada home prices – time to act “is now”

These developments have stressed the need for more housing supply to be developed faster and more efficiently, Hogue said.

“This became clearly evident in the past year with bidding wars springing up in places that have rarely or never seen them before, and intensifying in places more accustomed to them. And until demand and supply return closer to balance, prices will continue to rise,” Hogue said. “Interest rates even dented housing affordability most recently. A small increase in the five-year fixed mortgage rate accounted for half the 2.0% increase in RBC’s aggregate measure for Canada in the third quarter.”

The market should thus prepare for borrowing costs to become more expensive soon, Hogue said.

“Fixed mortgage rates have gone up since summer and we expect the Bank of Canada to start hiking its overnight rate next spring, which would drive variable rates higher. The knock on affordability will be felt across the country,” Hogue said.

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