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Will house prices drop in 2021?

A recent article in the Financial Post stated that house prices are set to drop in Canada by as much as 10% by the end of 2021. Toronto is predicted to see prices decrease by 9% while other areas such as Calgary and Edmonton will see 10%. Ottawa, which has been highly active recently, will see much lower decreases by as little as 3%. In the article, they say this is due to lower numbers of immigration, high unemployment, and lower salaries all due to the Covid disruption.

So will house prices decrease in 2021? Predictions are uncertain, and I do not mean to contradict an established magazine such as the Financial Post, but I am not 100% on board with their predictions. Let me explain why…

Yes, immigration may be slower with the borders being tightened, but there are still many newcomers who are moving into or within the country. Will this decrease of newcomers affect the prices of homes? It will be an influence but is it enough to cause house prices to drop? On its own, most likely not.

Yes, there is higher unemployment and lower salaries, and this may force first time home buyers to wait to buy. Those who could barely afford to get into the market are now unable to. So if they can not buy then they must rent. Lower rental vacancies and a stronger rental market will encourage investors. Also, higher unemployment and lower salaries may force people to sell, flooding the market with large numbers of properties. So will higher unemployment and lower salaries cause home prices to drop? Possibly, but I believe instead of causing the prices to drop, it may instead slow the rate at which the prices are currently climbing. The market will become more of a balanced or possibly even a buyer’s market and we will see fewer multiple offers on each property. This on its own will not cause the prices to drop.

Some other considerations that must be weighed when considering whether or not property prices will decrease include the lack of new homes being built, historically low interest rates, and the current level of activity in the market (in Southern Ontario anyway).

Evidently Covid has affected many industries including the lumber industry to the point that many developers have paused construction due to the lack of lumber available. This lack of lumber leads to the decrease of new build homes on the market, causing people who want to buy to purchase resell. In 2019, 13% of home buyers purchased new build homes. That 13% now adds to the competition on resell homes. More buyers competing for the same number of homes means more pressure forcing the price higher.

Low interest rates have always encouraged people to buy and may be one of the main reasons the market has been so active for the past few years. If the banks raised the interest rate it could influences the prices of homes, but due to the economy at this time it is very unlikely the banks will. Or at least raise it enough to significantly impact the housing market.

The market right now is so active that most properties are getting multiple offers and selling at or above list price and in most cases market value. Some houses are selling with well over 10 offers. A few are seeing much more than that. With that many buyers looking to buy but just unable to due to the lack of houses, there will be active buyers looking for many months to come. How long is anyone’s guess, but don’ forget the new buyers beginning their search every day. The momentum of the market is not going to dry up over night.

To summarize, I can see the influences that cause concern and may affect the prices of homes in the coming year. BUT I can also see the influences that have caused the market to become as active as it has been. Influences such as the low interest rates, high demand to purchase, and currently the low number of properties available. Everything weighed, I do not think property values will decrease in 2021. Personally, I believe they will continue to climb but at a much slower rate than currently.

What do you think? Do you agree with what I have said? If you would like to get together for a socially distanced coffee and discuss, please give me a call or send me an email. I look forward to hearing from you.

Read the article in the Financial Post here: Financial Post Article September 2020

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