by benoit p. durocher, senior economist, and hendrix

ECONOMIC VIEWPOINT

Desjardins, Economic Studies: 514‑281‑2336 or 1 866‑866‑7000, ext. 5552336 • [email protected] • desjardins.com/economics

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2021, Desjardins Group. All rights reserved.

A Combination of Several Positive FactorsThe housing market vitality recorded in most parts of Canada in the last few months is due to a combination of several factors. For one thing, the pandemic had fairly large direct repercussions on the housing market. Working from home and the lockdown caused many households to take another look at their housing needs. Among other things, there is a stronger preference for spacious homes. Demand for homes with a private yard in the suburbs of major cities or in rural areas has thus increased sharply, resulting in faster price growth for this type of housing (graph 1). We are also seeing stronger price growth for single‑family homes (graph 2). Demand for vacation properties has also increased.

Moreover, the closure of many sectors of the economy during the pandemic limited consumption choices, which steered some consumer spending into the real estate market. Simultaneously, the various government assistance measures led to a big increase in households’ disposable income. This helped boost savings, some of which may have been used to put a down payment on a property (graph 3 on page 2). The rise in savings was sharper among people with higher incomes, who are also more likely to buy a property (graph 4 on page 2). Financial institutions also helped households by allowing those affected by the pandemic to defer their payments. This seems to have curbed the number of bankruptcies and therefore the number of homes going onto the market.

Will Canada’s Housing Market Lose Steam Any Time Soon?By Benoit P. Durocher, Senior Economist, and Hendrix Vachon, Senior Economist

ECONOMIC STUDIES | JUNE 10, 2021

GRAPH 1With telework, the pandemic changed the housing market’s dynamics

NOTE: Each point represents a forward sortation area (a geographical unit based on the first three characters in a Canadian postal code). The lines are trend lines expressing the average relation in each city between housing price growth and the distance to the city core.Source: Bank of Canada's April 2021 Monetary Policy Report

Housing prices rose faster outside of city cores – Growth of housing prices over one year in the fourth quarter of 2020 and distance from the city core

In %

Distance from city core in km

302520151050

-50 10 20 30 40 50 60 70 80

Vancouver

Calgary

Toronto

Ottawa

Montreal

Halifax

GRAPH 2Canadians are looking for more living area

Sources: Canadian Real Estate Association and Desjardins, Economic Studies

Existing home price index

Annual variation in %

-5

0

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Single-family homes

Condo apartments

In most parts of Canada, the housing market has been exceptionally strong for the last few months. A number of factors lie behind the upswing, with the pandemic creating numerous market distortions. As the lockdown lifts, however, we can expect the situation to slowly get back to normal. That said, some positive factors will persist. Under these conditions, our forecasts call for the housing market to stabilize soon in most parts of the country. The uptrend should moderate rapidly following the rapid price growth seen in the last few quarters. Substantial risks persist, however. On one hand, the housing market could surprise us again with vitality that lasts longer than anticipated. On the other, we cannot rule out the possibility that the housing market will correct more than expected in the coming quarters.

http://desjardins.com/economics

ECONOMIC STUDIES

2JUNE 10, 2021 | ECONOMIC VIEWPOINT

Various industry players and the media also reported that the number of divorces and separations has increased since the start of the pandemic. This would create additional demand for housing. However, no official statistics have been released so far to validate the scope of the phenomenon. Since the start of the pandemic, elderly homeowners have been in less of a rush to sell their homes and move into a seniors’ residence, where living conditions have become less appealing.

In addition to these factors, interest rates fell in 2020, making it easier to buy property (graph 5). In fact, our affordability index improved substantially last spring (graph 6). However, it has tended to deteriorate in the last few months, as property prices are going up rapidly and interest rates are starting to rise again. Affordability seems to be declining less in Quebec, but that is partly due to the fact that a different data source is used for Quebec.1 In the first quarter of 2021, Quebec’s income growth

has also been better, another explanation for the differing evolution of affordability.

Lastly, the number of Canadians aged 25 to 34 has been rising sharply in recent years (graph 7 on page 3). This age group generally guides the trend for the number of first-time buyers. However, there was no boom in Canada’s housing market between 2016 and 2019 (graph 8 on page 3). Perhaps the higher interest rates in those years put some potential first-time buyers off. Affordability was also fairly low in several markets. Under these conditions, pent‑up demand may have accumulated, which is now being released.

All in all, a major imbalance between housing market supply and demand has materialized in the last few months. The number of properties sold has shot up since mid‑2020 in all provinces. The number of property sales shattered a historic record in March or April in all provinces except Quebec. Quebec hit the

GRAPH 3Disposable income and savings exploded in 2020

* Including the variation in pension benefits.Sources: Statistics Canada and Desjardins, Economic Studies

In $B

1,0501,1001,1501,2001,2501,3001,3501,4001,4501,5001,550

2016 2017 2018 2019 2020 2021

Mill

iers Disposable income*

Final consumption spending

Canada – Households

Surplus savings±$190B in 2020

GRAPH 4The rise in savings is primarily concentrated in the higher income brackets

Canadians amassed an average of $5,800 in surplus savings in 2020

Source: Bank of Canada's April 2021 Monetary Policy Report

GRAPH 5After declining in the last few quarters, mortgage rates should start to come back up

Sources: Bank of Canada and Desjardins, Economic Studies

In %

0

1

2

3

4

5

6

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Bank of Canada's target for the overnight rateWeighted average rate

Desjardins forecasts

Weighted average interest rate on cash advances

GRAPH 6The Desjardins Affordability Index contracted in the first quarter of 2021

Sources: Statistics Canada, Canadian Real Estate Association, JLR Land Title Solutions,Equifax Company, Conference Board of Canada and Desjardins, Economic Studies

Index

80

95

110

125

140

155

170

2006 2008 2010 2012 2014 2016 2018 2020

Canada Quebec Ontario

1 For Quebec, the data on property prices comes from JLR Land Title Solutions, an Equifax company; for the rest of Canada, the data comes from the Canadian Real Estate Association (CREA). The Quebec data is recorded when the property is transferred at the notary's; data for the rest of Canada is recorded when the purchase offer is signed, before the visit to the notary. There may therefore be a lag of three to six months between the CREA and JLR data.


ECONOMIC STUDIES

peak a little earlier, in August 2020. This resulted in a major rise in property prices, which also hit a historic high recently in most provinces (graphs 9 to 12). In tandem with rising prices, new listings have also gone up in the last few months in most provinces (graphs 13 to 16 on page 4). The increase in the supply is not enough to keep up with the strong growth in the number

of transactions, however. Among other things, the increase in listings is not enough to offset the lag accumulated in Quebec in prior years. Therefore, the sales to new listings ratio is historically very high in Quebec, Ontario and in several other regions of Canada (graph 17 on page 4), leading to upward pressure on prices.

GRAPH 7The first-time buyer cohort has now seen a few years of strong growth

Sources: Statistics Canada and Desjardins, Economic Studies

Population aged 25 to 34


-4

-3

-2

-1

0

1

2

3

4

1980 1985 1990 1995 2000 2005 2010 2015 2020

Canada Quebec Ontario

Heavy demand

GRAPH 8Despite the large first-time buyer potential, no boom occurred in the housing market between 2016 and 2019


Canada – Existing properties

In units

400,000

450,000

500,000

550,000

600,000

650,000

700,000

750,000

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2015 2016 2017 2018 2019 2020 2021

Sales (left)Average property price (right)

In $

GRAPH 9Housing is showing good momentum in Quebec


Quebec – Existing properties

In units

250,000

275,000

300,000

325,000

350,000

375,000

400,000

425,000

450,000

475,000

1,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,000

2015 2016 2017 2018 2019 2020 2021


In $

GRAPH 10Ontario’s housing market is also strong


Ontario – Existing properties

In units

400,000450,000500,000550,000600,000650,000700,000750,000800,000850,000900,000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2015 2016 2017 2018 2019 2020 2021


In $

GRAPH 11In Alberta, housing market growth has picked up speed since the pandemic started


Alberta – Existing properties

In units

360,000

370,000

380,000

390,000

400,000

410,000

420,000

430,000

440,000

450,000

1,500

2,500

3,500

4,500

5,500

6,500

7,500

8,500

2015 2016 2017 2018 2019 2020 2021


In $

GRAPH 12British Columbia’s housing market has been going strongsince 2019


British Columbia – Existing properties

In units

550,000

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

2,500

4,500

6,500

8,500

10,500

12,500

14,500

2015 2016 2017 2018 2019 2020 2021


In $

ECONOMIC STUDIES


In a context of scarcity, more potential buyers go after the same properties. This increases the phenomenon of multiple offers and bidding wars, accelerating price growth. According to the industry, offers with no visit or inspection have increased. However, no official public data is available to properly assess the magnitude of these phenomena.

The scarcity of homes for sale is giving a strong impetus to new construction. In Canada, and in Ontario, housing starts hit a record peak last March (graphs 18 and 19 on page 5). Quebec hit a peak in January 2021 (graph 20 on page 5). Housing starts have declined slightly since then but still remain high. In fact, there is a limit to increasing the supply in the new construction

GRAPH 13New listings are up in Quebec, without wiping out the lag of recent years

* 10-year moving average.Sources: Canadian Real Estate Association and Desjardins, Economic Studies

Quebec – New listings

In thousands

2

4

6

8

10

12

14

2000 2003 2006 2009 2012 2015 2018 2021

Mill

iers

Level Trend*

GRAPH 14In Ontario, new listings are above the long-term trend


Ontario – New listings

In thousands

10

15

20

25

30

35

40

2000 2003 2006 2009 2012 2015 2018 2021

Mill

iers

Level Trend*

GRAPH 15New listings increased recently in Alberta


Alberta – New listings

In thousands

2

4

6

8

10

12

14

2000 2003 2006 2009 2012 2015 2018 2021

Mill

iers

Level Trend*

GRAPH 16In British Columbia, new listings are high from a historical perspective


British Columbia – New listings

In thousands

4

6

8

10

12

14

16

18

2000 2003 2006 2009 2012 2015 2018 2021

Mill

iers

Level Trend*

GRAPH 17Major imbalance between supply and demand in Quebec and Ontario


Sales-to-new listings ratio

In %

20

35

50

65

80

95

110

125

2000 2003 2006 2009 2012 2015 2018 2021

Quebec Ontario

Quebec – Trend* Ontario – Trend*

GRAPH 18Housing starts are trending up in Canada

* 6-month moving average.Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

Canada – Housing starts

In thousands

150

175

200

225

250

275

300

325

350

2018 2019 2020 2021

Level Trend*Historic peak


ECONOMIC STUDIES

segment. In terms of workers, equipment and materials, capacity is limited. This is affecting construction costs, which have shot up in the last few quarters (graph 21).

The pressure is even higher on single‑family home construction. After declining for a number of years, buyers’ change in preference have given this segment of the housing market new

momentum (graph 22). Moreover, remote regions seem to have more benefited from the rebound in construction (graph 23). These regions also have more lots available for building single‑family residences.

Together, these pressures mean that new home buyers must cope with higher monthly payments. Take, for example, a typical household that buys an existing property at the average price with a minimum down payment and 25‑year amortization (table 1 on page 9). For Canada as a whole, the average resale price went from $587,500 in February 2020 to $723,500 in April 2021. This price increase was partially offset by a drop in the weighted average mortgage rate, which was at 2.07% in April, compared with 3.18% in February 2020. All in all, the monthly payment on purchasing a property increased $223 from February 2020 to April 2021 for typical Canadian buyers, which represents an increase of 8.0%. Annually, the increase is $2,676, a significant amount, especially for first-time buyers. However, there are major differences from region to region. For the typical household, the increase in monthly payments is $242 (+13.5%) in the Greater Montreal area and $171 (+4.3%) in the Greater Toronto area. In contrast, Calgary saw a typical household’s monthly payments decline $92 (‑4.6%), while

GRAPH 19Housing starts are also trending up in Ontario


Ontario – Housing starts

In thousands

40

60

80

100

120

140

2018 2019 2020 2021

Level Trend*Historic peak

GRAPH 20The trend for housing starts accelerated recently in Quebec


Quebec – Housing starts

In thousands

0

20

40

60

80

100

120

2018 2019 2020 2021

Level Trend* Historic peak

GRAPH 21Construction costs are shooting up, particularly in Montreal


Montreal – Residential buildings construction price index

2017 = 100

2

3

4

5

6

7

8

9

10

100102104106108110112114116118120

2018 2019 2020 2021

Index (left)Annual variation (right)

In %

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

2017 2018 2019 2020 2021 2022

GRAPH 22Single-family home construction is forecast to rebound substantially in Quebec


Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

Single-family housing starts

In number

Var. in %-15 0 15 30 45 60 75 90 105 120

OutaouaisLanaudièreMontérégie

Capitale-NationaleMauricie

Centre-du-QuébecQuebec as a whole

MontrealLaurentides

Saguenay–Lac-Saint-JeanEstrie

Chaudière-AppalachesCôte-Nord

LavalAbitibi-Témiscamingue

Bas-Saint-LaurentGaspésie–Îles-de-la-Madeleine

Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

GRAPH 23New construction accelerated in Quebec’s remote regions in 2020

Housing starts

ECONOMIC STUDIES


Greater Vancouver is showing a decrease of $72 (‑1.5%). In the latter two cases, the drop in interest rates more than offset the price increase.

The Situation Is Expected to Calm Down after the PandemicIt is hard to believe that the housing market’s current strength will last for several more quarters. Already, the recent increase in longer‑term interest rates and higher property prices is hurting accessibility. The issue is particularly serious in Ontario, where several census metropolitan areas (CMAs) were in unaffordable territory in the first quarter of 2021 (graph 24). The situation seems less critical in most parts of Quebec, and four CMAs even remain affordable.

The surge in property prices is also foregrounding the concerns over excessively high household debt loads. In a recent report, the Bank of Canada stressed that a growing proportion of households are taking on a level of debt that is deemed problematic (graph 25). The debt‑service ratio, which shows the evolution over time of interest and principal repayment costs, is also a good indicator of the debt’s sustainability. In Canada,

this ratio was already high, historically speaking, before the pandemic. Interest rates dropped at the start of the pandemic, which helped the ratio improve, but rates are already tending to rise again (graph 26), mainly because property prices have gone up. With mortgage rates forecast to rise, the debt‑service ratio should quickly soar to new heights.

Governments and regulators are very aware of the risks created by the effervescent real estate market, particularly for financial stability. The Office of the Superintendent of Financial Institutions (OSFI) and federal government recently announced new macroprudential measures. Among other things, since June 1, the minimum qualifying rate for uninsured mortgages (home mortgages with a down payment of at least 20%) is the greater of the mortgage contract rate plus 2.00% or 5.25%. This means it is now harder to qualify for a mortgage.

In the long run, price evolution will continue to be dictated by supply and demand. The high prices and rising interest rates are likely to discourage future buyers, particularly first-time buyers. At the same time, high prices will likely continue to encourage sellers, particularly those who have stayed on the sidelines because of the pandemic. The combination of softer demand and a bigger supply would help to gradually rebalance the market. Normally, this would argue for more subdued price growth or even slight price decreases in some places.

The ending of the pandemic should also see some adjustments in the housing market. First, the elimination of lockdown measures, including the end of full‑time teleworking for some workers, will make large, remote homes less popular. At the very least, buyers could become less inclined to pay a premium for this type of home. A survey of Canadian businesses revealed that most of them plan to return to a situation in which teleworking represents a smaller proportion of work (graph 27 on page 7) than it did during the pandemic. Subsequently, the reopening of all parts of the economy will redirect spending. People will start to travel again, go to the restaurant, and have fun outside

-75 -60 -45 -30 -15 0 15 30

WindsorLondon

St. Catharines–NiagaraKitchenerHamiltonKingston

Ottawa–GatineauGreater Sudbury

TorontoThunder Bay

WinnipegVancouver

MontrealCalgary

EdmontonSherbrooke

QuebecTrois-Rivières

Saguenay

GRAPH 24Spread between the Desjardins Affordability Index and its historical average in the first quarter of 2021

Sources: Statistics Canada, Canadian Real Estate Association, JLR Land Title Solutions,Equifax Company, Conference Board of Canada and Desjardins, Economic Studies

In %

Census metropolitan areas

Affordable

To be monitored

Unaffordable

GRAPH 25The share of new mortgages with a loan-to-income ratio above 450% has increased somewhat

NOTE: Data include purchases and refinancing originated by federally regulated financial institutions. High-ratio mortgages have a loan-to-value ratio greater than 80% and must be insured. Low-ratio mortgages have a loan-to-value ratio of 80% or less.Source: The Bank of Canada’s April 2021 Update on housing market imbalances and household indebtedness

The proportion of new mortgages with high loan-to-income ratios is trending upIn %

4

8

12

16

20

24

2014 2015 2016 2017 2018 2019 2020 2021

Total mortgages High-ratio mortgages Low-ratio mortgages

Start of global pandemic

GRAPH 26Debt service declined at the start of the pandemic, but is now starting to trend up again in Canada


Households – Debt service ratio

In % disposable income

02468

10121416

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Total Interest payment Principal repayment


ECONOMIC STUDIES

the house. This will reduce the budget available for housing. Lastly, many older people who had put off moving into a seniors’ residence could finally get into gear and put their homes up for sale. This will increase the supply in the market. Under these conditions, the bidding war phenomenon, which is currently accelerating price growth, should fade.

However, the improving economic situation will remain favourable to the housing market. The decrease in economic uncertainty and drop in the unemployment rate will be notable (graph 28). Housing market corrections are generally rare when the economy is doing well. Households also have substantial savings, which could keep boosting the housing market.

One factor has not yet been addressed: immigration. New arrivals constitute new demand on the housing market. In Quebec, immigration had surged from 2017 to 2019 (graph 29). Immigration plunged during the pandemic, but the effect on the housing market was largely offset by other factors. For the post‑pandemic period, it is reasonable to believe that immigration’s recovery will partially offset some housing market negatives. That said, the impact could vary by region and we do not

know exactly what pace migratory flows will set in the coming quarters. Usually, immigration is focused in the major centres. In Quebec, the Montreal region could probably do better than most other regions. In Ontario, the impact of immigration fluctuations on the real estate market was smaller during the pandemic. While international immigration also declined in 2020 (graph 30) in Ontario, it remained much higher than in Quebec.

Toward StabilizationAs the summary table (table 2 on page 10) shows, most of the factors currently affecting the housing market are temporary, arising from the turbulence caused by the pandemic. If the pandemic continues to wane as projected, we can expect most of these factors to slowly normalize over the coming months. The housing market should then start to see a better balance between supply and demand.

Under these conditions, our forecasts call for the housing market to stabilize soon in most parts of the country. The uptrend should rapidly moderate, probably this summer, after the strong price growth recorded in the last few quarters. Thereafter, we should see some stability. For Quebec and Ontario, this would take us

GRAPH 27Most businesses will privilege on-site work or a hybrid model after the pandemic


Range of staff working remotely – All industries

Proportion of respondents in %

05

10152025303540

0% to

1%

1% to

10%

10%

to 2

0%

20%

to 3

0%

30%

to 4

0%

40%

to 5

0%

50%

to 6

0%

60%

to 7

0%

70%

to 8

0%

80%

to 9

0%

90%

to 1

00%

100%

of s

taff

On August 31, 2020

Once the pandemic is over

GRAPH 28The unemployment rate should keep falling in Quebec and Ontario


Unemployment rate

In %

4

6

8

10

12

14

16

18

2015 2016 2017 2018 2019 2020 2021 2022 2023

Quebec OntarioDesjardins forecasts

GRAPH 29The pandemic had major repercussions for the evolution of Quebec’s population


Quebec – Demographic growth factors

In number

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Natural increaseNet international migrationNet interprovincial migration

GRAPH 30The pandemic also had repercussions for the evolution of Ontario’s population


Ontario – Demographic growth factors

In number

-10,000-5,000

05,000

10,00015,00020,00025,00030,00035,00040,00045,000

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Natural increaseNet international migrationNet interprovincial migration

ECONOMIC STUDIES


toward price growth that is barely on the positive side for 2022 (graph 31).

In tandem with that, we also expect the level of resales and housing starts in Quebec and Ontario to moderate. That said, activity should still remain high, historically speaking (graph 32).

Substantial risks persist, however. On one hand, the housing market could surprise us again with vitality that lasts longer than anticipated. Additional macroprudential measures could then be needed, akin to the recent increase in the reference rate applicable to uninsured mortgages ordered by the OSFI. On the other, we cannot rule out the possibility that the housing market will correct more than expected in the coming quarters.

Nonetheless, it would be sensible to learn a few lessons from this exuberant period. In particular, it would be desirable, in the future, to make the process of buying a property more transparent. In Quebec, the government is considering the possibility of preventing no‑inspection transactions, and making the various purchase offers on the same property public. This would be a good way to keep property prices from ballooning in the case of multiple offers and bidding wars. However, other provinces would have to follow Quebec’s lead for it to have a real impact across the country. As housing market regulation is a provincial matter, nothing can be taken for granted on this subject.

0

3

6

9

12

15

18

21

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Quebec Ontario

GRAPH 31The sharp acceleration in property prices should moderate in the coming months in Quebec and Ontario

Average price of existing homes




GRAPH 32Real estate market activity will slow but should remain at levels that are high historically

65

75

85

95

105

115

125

303540455055606570

2010 2013 2016 2019 2022Housing starts (left)Sales of existing properties (right)

Quebec Ontario

In thousands In thousands In thousandsIn thousands

190

210

230

250

270

290

310

330

55

65

75

85

95

2010 2013 2016 2019 2022Housing starts (left)

Sales of existing properties (right)

Sources: Canadian Real Estate Association, Canada Mortgage and Housing Corporationand Desjardins, Economic Studies

Desjardins forecastsDesjardins forecasts


ECONOMIC STUDIES

Annex

Feb. 2020

April 2021

Feb. 2020

April 2021

Feb. 2020

April 2021

Feb. 2020

April 2021

Feb. 2020

April 2021

Average price ($K) 587.5 723.5 376.7 483.2 848.3 1,005.5 415.4 447.8 1,022.9 1,141.9

Minimum down payment1 ($K) 33.75 47.35 18.84 24.16 59.83 75.55 20.77 22.39 77.29 89.19Mortgage loan ($K) 553.8 676.2 357.9 459.0 788.5 930.0 394.6 425.4 945.6 1,052.7Weighted average mortgagerate (%)

3.18 2.07 3.18 2.07 3.18 2.07 3.18 2.07 3.18 2.07

Amortization (year) 25 25 25 25 25 25 25 25 25 25

Monthly payment2 ($) 2,779 3,002 1,796 2,038 3,957 4,128 1,980 1,888 4,745 4,673Spread ($) --- 223 --- 242 --- 171 --- -92 --- -72Spread (%) --- 8.0 --- 13.5 --- 4.3 --- -4.6 --- -1.5

1 5% of the first $500,000 of the loan’s value plus 10% of the remaining value of the loan.2 Including the Canada Mortgage and Housing Corporation premium.Sources: Canadian Real Estate Association and Desjardins, Economic Studies

TABLE 1Evolution of monthly mortgage payments

CANADA MONTREAL TORONTO CALGARY VANCOUVER

ECONOMIC STUDIES


EFFECT ON HOUSING PRICES*

TEMPORARY OR PERMANENT

COMMENTS

Preference for more space (lockdown and workingfrom home)

↑ Partially temporary Some companies should continue facilitating working remotely. We should not fully return to the pre-pandemic situation.

Enthusiasm for vacation homes ↑ Partially temporary The removal of public health measures will give households other options for getting away.

Bidding wars/multiple offers ↑ Temporary We expect this to moderate as market conditions normalize after the pandemic.

Low interest rates ↑ Temporary, gradual reversal

Interest rates have already started to go up, but will do so gradually. We expect Canada’s first key interest rate increase to come in October 2022. High debt loads make households more sensitive to rate increases.

Government support (growth in disposable income)

↑ Temporary Most support measures should be rolled back once the pandemic is over. However, we do not expect a negative shock to income.

High savings ↑ Permanent The high savings rate in recent quarters could facilitate access to ownership for some households that capitalized on the situation to save for a down payment more rapidly.

Increase in the budget that can be earmarked for housing

↑ Temporary The lifting of public health measures will see an increase in spending in non-housing sectors.

Drop in immigration ↓ Temporary Assuming that migration resumes and potentially some catching up to make up for the 2020 shortfall.

Divorces/separations ↑ Temporary, gradual reversal

Hard to predict. Data not available. The phenomenon couldgradually ebb.

Supply insufficient initially ↑ Temporary, gradual reversal

A shortage existed in some housing markets before the pandemic. It could take some time to return to normal.

Pent-up supply (seniors or people not interested in selling during the pandemic)

↑ Temporary After the pandemic, pent-up supply could be unleashed. Hard to predict the pace and scope.

High prices encouraging peopleto sell

↓ Permanent, conditional on the market robustness

In the context of high prices, owners could want to capitalize on the situation and sell.

New construction ↓ Permanent Even if construction slows, the pace of housing starts should remain high historically and help reduce the shortage.

Construction costs ↑ Temporary, gradual reversal

It would be surprising for input costs to drop suddenly. We still expect them to subside toward normal gradually.

Difficult economic situationand uncertainty

↓ Temporary After a very challenging 2020, we expect the situation to improve rapidly in the coming months, with uncertainty declining substantially.

TABLE 2Summary

* In the last few quarters.Source: Desjardins, Economic Studies

by benoit p. durocher, senior economist, and hendrix

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