What’s in store for the 2020 housing market? Image

What’s in store for the 2020 housing market?

By Penelope Graham on Jan 07, 2020


A spanking new decade is now upon us – but while the mood is set for 2020 to usher in fresh beginnings, the same can’t be said for Canada’s housing market. According to a number of forecasts, buyers, sellers and renters can expect the same ol’ issues to persist throughout the new year, such as crunched affordability, a lack of supply, and heating conditions in the nation’s biggest markets. Let’s take a look at what could be in store for the real estate industry this year.

Prices to keep heating up

While 2019 was arguably a year of recovery in many of Canada’s markets, as the effects of the federal mortgage stress test and various provincial policies were absorbed, that renewed strength could put a boil under price growth in 2020.  

The lower interest rate environment that helped juice home sales in the second half of 2019 is widely expected to stick around this year, with several national real estate associations forecasting an uptick in sales and, as a result, home values. According to the Canadian Real Estate Association, 2020 could ring in a total of 530,000 sales, up 8.9% from a national perspective. That will drive home prices up by 6.2% to an average of $531,000.

The Canada Mortgage and Housing Corporation has also released a strongly optimistic outlook, calling for a full recovery in both sales and prices, as home buyers enjoy a surge in income and population booms drive demand in the largest job markets. It expects 2020 sales to range between 480,600 and 497,700 transactions, up 6% from 2019, with the average price rising between 5.6 and 6.7% to $506,200 to $531,000.

“Overall, economic and demographic conditions will remain supportive of housing activity over the forecast horizon, halting the declines in starts, sales, and average home prices that followed the highs of 2016 – 2017,” states the CMHC. 

BC and Ontario to see greatest growth

While the national housing picture looks poised for growth, however, much of that will be concentrated in Ontario and British Columbia, with mixed results in the prairie markets and Maritimes. 

BC, in particular, is set for a big year; after sustaining steep double-digit percentage drops in both sales and price growth following new speculation and foreign buyer taxes introduced in 2017, sales are anticipated to rebound by up to 23% this year, with prices to rise between 2.8 and 3.6% at an average of $675,000 to $749,500, according to the CMHC.

In the Ontario real estate market, sales will hit between 204,200 and 213,800 units (+4.2 to 7.3%), with prices between $614,000 and $633,700 (+5.4 to 6.5%).

Buyers will fight it out in the GTA

Toronto sellers will be cheered to hear they’ll firmly have the upper hand once again in 2020, as the supply and demand gap that persistently grew throughout 2019 will continue throughout the new year. 

While the Toronto Real Estate Board reported steadily increasing sales throughout the year, new listings floundered; according to year-end numbers, the sales-to-new-listings ratio for the city hit 81% in November, indicating just over 20% of all new listings brought to market trading hands in a steep sellers’ market. Unless a considerable block of available homes for sale hit the market, these conditions could fuel price growth to too-hot-to-handle levels this year.

“Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019,” said Jason Mercer, TREB’s chief market analyst. “Increased competition between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”

Sellers’ market conditions will also be prevalent on the national stage; according to CREA, the total SNLR currently sits at 66.3%, reflecting an annual 2.7% decline in MLS listings in Canada. As well, the total months of inventory – the length of time it would take to completely sell off all available homes for sale – currently sits at 4.7 months, its lowest level since 2007.

Mortgage rates will remain cheap

The one silver lining for home buyers this year is that home financing will still be historically cheap to obtain. The Bank of Canada, the central bank that sets the cost of borrowing for consumer lenders, kept its trend setting mortgage rate untouched for the entirety of 2019 at 1.75%, and is largely expected to do the same for the bulk of 2020, with perhaps potential for a rate cut in the near future. 

That’ll allow banks and credit unions to keep their mortgage and line of credit products competitively priced, while bond market yields – which set the cost of fixed mortgage rates – will also stay low, given there’s no rate hike risk on the horizon.

Due to this, borrowers have had access to some of the lowest mortgage rates on record in 2019 – and this is likely to persist throughout the new year, according to the latest communications from the BoC. In the Bank’s year-end speech, Governor Stephen Poloz outlined the major long-term forces that will shape the economy and interest rates over the next year – and they look to stick to the status quo.

By far the biggest threat to Canada’s economy that could cause a rate shakeup are growing trade tensions between the U.S. and China – should there be an incident that leads to a global recession, the BoC could be forced to cut rates to keep Canada’s economy flowing. However, it’s also keenly aware that keeping interest rates low will boost levels of household debt, which is also a main point of vulnerability. 

“When interest rates are low, households, firms and governments tend to borrow more. That supports the economy, but high debt means more vulnerability if something bad happens,” stated the BoC’s latest announcement. 

With this in mind, it’s unlikely the BoC will slash rates unless they absolutely have to – but they’re even less likely to hike the cost of borrowing in the near term, meaning mortgage borrowers will be able to rely on cheap interest rates to stretch their home buying dollars.

In all, it’s shaping up to be a sizzling year for the housing market, with home buyers returning in full force, and sellers poised for great returns. Here’s to a booming 2020!

Penelope Graham is the Managing Editor at Zoocasa, a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings, including MLS listings in Ontario, at zoocasa.com or download our free iOS app.

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