Home prices to continue to climb in 2021 as unmet demand carries over: Royal LePage

Home prices are expected to climb higher next year as unmet demand in the second half of 2020 carries over into 2021, a report by Royal LePage says.

After 2020 threw housing market watchers for a loop, the brokerage’s report, released Monday, suggests a positive outlook for 2021 with the aggregate home price in Canada expected to rise 5.5% year-over-year to $746,100.

Royal LePage chief executive Phil Soper says leading indicators are pointing to a coming spring market that favours property sellers.

“Across the country, a large number of hopeful buyers intent on improving their housing situation were not able to find the home they were looking for this year, as the inventory of properties for sale came nowhere near to meeting surging demand,” said Soper, adding that policy-makers have said interest rates will remain low, which could support mortgage borrowing next year.

“The upward pressure on home prices will continue.”

Royal LePage’s forecast comes on the heels of a similar report from Re/Max earlier this month, that forecast a 4% to 6% increase in home prices next year.

Re/Max said that 84% of brokers expected a sellers’ market in 2021, as “households are considering significant lifestyle changes by relocating to less-dense cities and neighbourhoods.”

The Royal LePage report suggested a similar trend, predicting the value of single-family houses and homes outside of major urban markets are forecast to continue to outpace city core condominiums.

The median price of a two-storey detached house is expected to increase 6% to $890,100, Royal LePage said, while the median condominium price is forecasted to rise 2.25% to $522,700. The difference will be driven both by Canadians seeking larger homes and broad-based demographic trends, including baby boomer retirement, the Royal LePage report said.

Royal LePage said that while next year could see “healthy” demand for condos with the return of international university students and an increase in immigration, the Toronto area could prove to be a “notable exception” to the trend. The report suggests condo prices in Toronto will have grown just 0.5% by this time next year.

Cities with above-average price predictions from Royal LePage included Ottawa, at 11.5%, Halifax, at 7.5%, and Vancouver, at 9%.

Re/Max suggested Vancouver’s suburban neighbourhoods, such as Pitt Meadows, Ladner and Maple Ridge, will be top performers next year thanks to affordability and easy access to more outdoor space. In Halifax, Re/Max said, home prices may be lifted by a continuing influx of out-of-province buyers and move-up buyers “who have either expedited retirement plans or are working from home and no longer need to be in an office.”

As for Ottawa, Re/Max suggested that part of the upward trend is being driven by “luxury” buyers, who are also seeking out space in Hamilton and Burlington.

While the two brokerages appear optimistic about the new year, both sets of predictions come after a year when the real estate market defied expectations.

After home sales plunged in the key March and April buying season, Canada Mortgage and Housing Corp. predicted at the end of May that house prices could fall by 9% to 18% before recovering in 2021. But, it didn’t happen.

Many housing markets across Canada reported bidding wars in the second half of 2020 amid record home sale levels, although some segments of the real estate market — such as oil-producing provinces and Toronto’s condo market — did struggle to keep up.

Re/Max and Royal LePage may be suggesting the momentum can continue in hot markets, but not everyone agrees. A report from Fitch Ratings this month predicts Canadian home prices will decline 3% to 5% next year as borrowers default on mortgages, and prices won’t recover until 2022.

Fitch said it expects 2020 to end with a 7% rise in home prices, but that 2021 will bring rising unemployment, housing unaffordability, declining rents, decreased immigration and mortgage stress tests.

The Fitch report suggests government support and payment holidays created an unsustainable situation, especially with falling rent prices making homeownership less attractive.

Royal LePage’s analysis also looked at payment deferrals, but came to a much sunnier conclusion: “The concern regarding the impact of potential mortgage defaults related to mortgage deferrals during the summer has eased significantly,” the brokerages said, “as many Canadians who deferred payments have begun repayment.”