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Katherine Judge, economist at CIBC Capital Markets.

The impact of social distancing measures on the housing market has been to freeze both the demand and the supply sides of the equation. That means any price signal that we’re getting right now is very unreliable because we don’t have enough transactions to see what’s really going on. As we’ve seen some social distancing measures removed in the last few weeks, we have seen a bit of a pickup in activity. That being said, we do expect it to be a very bumpy road for housing for the rest of this year and into 2021. We’re expecting prices to fall by 5% to 10% through 2021, relative to where they stood pre-virus. Different segments of the market will see different impacts. Specifically, if you look at the luxury end of condos, they’re likely to see a more sizable decline in prices. That’s something that we’ve already seen in the data that we’ve come in. Demand has shifted towards lower-priced units.

In particular, I think that segment that was actually affecting record-high completions this year will see a lot of downward pressure on prices relative to other segments of the market. When we look at the rental market, one of the biggest driving factors of the rise in the rental vacancy rate that we see happening into 2021, will be lower immigration. Of course, with travel restrictions, we’re now not seeing immigration. If you look at what’s happened in past recessions, immigration will continue its upward trend as soon as those are removed. But the other segment of the market — non-permanent residents — which includes students for example, will not rebound as quickly. That’s one factor that we have weighing on the rental market. Now, of course, rates are low, which means that real estate may work to draw money away from equities and bonds. It could be a buying opportunity if there isn’t any in your portfolio, but it will be a rough ride in the near term.

It won’t be until we get to 2022, when we start to see some improvement in that area. When you look at all of the actions that the Bank of Canada has taken, they have worked to lower mortgage rates. They’ve worked to increase liquidity in the markets. But you have to remember, in this environment of very low confidence, elevated unemployment and slow income growth, the interest rates are always a secondary factor. We do see some activity overall slowing, as the market returns to normal in 2021 when social distancing is removed even further.

One thing that we’re likely to see is an increase in mortgages in arrears. Of course, you’ve seen the Mortgage Deferral Program implemented, which has resulted in quite a heavy uptake, especially in Ontario given the levels of household debt seen here. Now when that program concludes, we still see the unemployment rate is being elevated.

So, there is a risk that mortgages in arrears rise further as a result of that. That’s one factor that we took into account in our home price forecast. In 2021, we see the market returning to normal functioning. Now, what does that look like? Because in 2021, we still see the unemployment rate as being elevated. Now, that means that we’re recovering into a recessionary environment where demand won’t be what it was pre-virus. So, yes, the market will get back to better functioning, but prices will still be 5% to 10% lower in that period of time. We don’t think it’ll be until 2022, when the unemployment rate falls further, that we would see any improvement in the housing market.

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