Housing market warming up after April chill, CIBC report says

By Katie Keir | May 22, 2020 | Last updated on December 6, 2023
3 min read
New home
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The future of Canada’s housing market may not be rosy, but there are “clear early signs” that activity might warm up heading into the summer, says a new report from CIBC Capital Markets economists Benjamin Tal and Katharine Judge.

“The housing market was basically frozen in April,” the Friday report said, with both sales and new listings down substantially last month. However, that resulted in “a relatively stable sales-to-listing ratio and a muted price response,” and all provinces were affected similarly.

April numbers from real estate boards weren’t good: national sales were down more than 50%, while home sales in the Greater Toronto Area (GTA) plunged 67% and prices in the region fell 11.8% from March.

But things may be looking up.

“Activity in the first two weeks of May was notably stronger than in the first two weeks of April, and as the economy starts to open, that pace will accelerate,” the CIBC report said.

While the economists pointed to an increased transaction volume, they also forecast a softer market.

Data from the Canadian Real Estate Association signalled a shift in demand toward less expensive units, the report said. The authors attributed this demand to current economic conditions, but also to some opportunistic buyers looking for a second property.

Citing the results of a Covid-19 study CIBC conducted in April and May, the report said, “No less than 23% of homeowners suggested that the combination of a softer market and lower interest rates is encouraging them to consider purchasing a second unit.” (CIBC polled more than 1,500 Canadians who are renters or homeowners.)

Mortgage and rental outlook

Of the homeowners surveyed who have a mortgage, more than half are on a fixed rate rather than a variable rate mortgage, the report said, and 20% of them have already renegotiated their rates.

The uptake for the mortgage deferral program was roughly 15% across the country, the report said, with “clear signs that the rush is over as the number of new applications is falling steadily.”

Ontario has the highest participation rate in the mortgage deferral program while B.C. has the lowest uptake, despite both regions experiencing affordability issues. The greatest share of users in the program are lower-income borrowers as well as 18 to 34 year olds, the report said.

The report also noted that average rental collection for April and May was better than expected at 90%. The energy-dependent provinces and Ontario rank highest in terms of renters unable to pay, according to CIBC’s poll, but federal and provincial Covid-19 measures are likely helping from a macro perspective.

Forecasts looking at the pandemic’s impact on the housing market have been wildly divergent.

A recent report from Scotiabank called concerns “overblown,” predicting that national housing prices will decline modestly to about 4% lower by year-end relative to the same period last year, followed by a rise of about 11% by the end of 2021.

Canada Mortgage Housing Corporation (CMHC) CEO Evan Siddall painted a stark picture in House of Commons testimony this week. The CMHC forecasts house prices in Canada falling between 9% and 18% in the coming year, and that mortgage arrears could rise from 12% to 20% by September.

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Katie Keir

Katie is special projects editor for Advisor.ca and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at katie@newcom.ca.