RBC: Booming Housing Market Activity Expected to Calm by 2022

The housing market in Canada has been booming amid the pandemic, despite relatively subdued activity in other sectors of the economy. A shifting demand in favour of more spacious accommodation, coupled with record-low interest rates and elevated household savings have “supercharged” home buying behaviour. However, a new report by RBC Economics suggests that the housing boom is not here to stay, and will likely subside by the end of next year.

The report, which was published Wednesday, forecasts that the current record-high trajectory of real estate activity will continue well into the new year, with home resale levels rising from 552,300 units in 2020 to 588,300 units in 2021. This will push the national benchmark price by 8.4% to $669,000, largely due to diminishing supply levels.

However, by the end of 2021, the report predicts that the booming housing activity will begin to cool off. RBC Senior Economist Robert Hogue calls it a “2022 soft landing,” suggesting that an even worse slowdown could emerge in the event that the pandemic continues to remain a threat to Canada’s economy. As a result, RBC forecasts that seasonally adjusted and annualized resales will fall from their December 2020 peak of 700,000 units to 515,000 units come December 2021.

The report cites reduced housing supply, eroding affordability, and an increase in interest rates as the reasons behind the market cool-down come next year. In addition, the report also notes that the impact from reduced immigration levels as a result of the pandemic – which thus far have primarily affected the rental and condo markets – will extend into the remainder of the housing market by the end of 2021.

Information for this briefing was found via RBC Economics. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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