What’s Going to Drive Real Estate in 2021?
Monday May 03rd, 2021
VACCINES, OUT-MIGRATION, & DETACHED HOMES:
March 2, 2021
In many ways, the COVID-19 pandemic amplified trends that were already underway in Canada’s residential real estate markets. Even with the pandemic, 2020 finished strongly and all indications point to more of the same for 2021. The role COVID-19 vaccines will play remains to be seen, though bringing the pandemic under control could spark a resurgence of interest in city living.
After cooling in March 2020 with the country’s first lockdown, the market for detached and single-family homes turned white hot and stayed that way, fuelled by workers’ needs for home office space and by older Canadians accelerating plans to retire to cottage country. By the end of December, sales activity was up 47.2%, the national average sales price jumped 17.1%, and the MLS® Home Price Index (HPI) climbed 13% — all year-over-year. Real estate in Canada went from weakness because of COVID-19 to strength despite COVID-19.
That performance was based on high demand, the persistence of low interest rates and ongoing tightness in housing supply, says CREA’s Senior Economist Shaun Cathcart. “With COVID-19 vaccines now rolling out, the question is how will the market respond—and what trends are likely to continue?”
URBAN OUT-MIGRATION WILL CONTINUE
“By some accounts, it might have seemed Canadians packed up and left cities in droves in 2020 as a result of the pandemic. That out-migration trend was likely exaggerated” - Cathcart says
“A natural flow of buyers out of cities is part of the real estate cycle: growing families move where there’s more space for kids, retirees seek out quieter, more scenic places to live. These moves may have seemed more pronounced last year because they weren’t offset by the usual flow of young buyers and new Canadians into cities due to pandemic-related restrictions.”
According to Cathcart, regions like the Greater Toronto Area (GTA) will likely continue to see urban out-migration in 2021—centres with surrounding smaller and medium-sized cities where people can gain space without giving up access to hospitals, schools and urban amenities such as high-performing internet.
“This was a trend even before the pandemic, as people looked for more affordable places to live. The saying was, ‘Drive until you qualify’: go away from the city centre until you reach an area where you could secure an affordable mortgage.”
Today, with remote work likely to remain a phenomenon even after the pandemic subsides, more people may choose to live away from cities because they don’t need to commute, he says.
THE NEED FOR SPACE WILL DRIVE DEMAND
The desire for more space is being seen outside suburban markets as well, extending into cottage country, according to REALTORS® such as Chuck Murney in Ontario and Len Wassill in Saskatchewan.
“Where a couple may previously have been satisfied with a one-bedroom condo, now they need room to work at home,” says Murney, a broker who serves the Parry Sound–Muskoka–Georgian Bay area. Two and three-bedroom condos are in much higher demand than one-bedroom units, he says, and single-family homes trump condominiums. Many buyers seeking the added value of moving to a rural location want waterfront homes with year-round capability.
According to Wassill, a salesperson in Melville, Saskatchewan, similar trends are in play in his market. Buyers from every age group and stage of life are in the market for space, waterfront proximity and houses that are move-in ready, he says. Garages are also important, and so is conformity with other properties in the surrounding area. “Features like those are important to resale value and future salability, which are top of mind for buyers.”
VACCINES MAY REKINDLE THE CONDO MARKET
Despite out-migration and demand for living space, urban markets will continue to be highly active according to Toronto-based salesperson, REALTOR® and President of the Toronto Regional Real Estate Board, Lisa Patel. “People will always want to enjoy urban living. The appetite is still there, and some people still very much love the condo lifestyle,” she says.
COVID-19 vaccines could help by leading governments to ease restrictions and open up immigration again, which Cathcart says is a key driver of urban growth.
Vaccines may also lead to more new listings of single-family homes in 2021. With physical distancing guidelines relaxed or removed, sellers may feel more comfortable meeting agents in-person and opening their homes for showings—important due to Canada’s generally low housing inventory.
“Regardless of how tastes and preferences evolve as we move past this COVID-19 experience, the big picture is that there is not enough housing supply in Canada relative to demand,” says Cathcart. “With so little out there for sale right now, the extent to which all that excess demand plays out either on the sales or the price side will depend more than anything else on how many owners put their homes up for sale this year.”
New listings will be an important stat to watch, he says, particularly in the spring.
INVENTORY WILL STAY LOW; SALE SHOULD STAY STRONG
Even with some rise in resale homes for sale, Canada’s housing inventory will remain low relative to demand in 2021. On January 1, inventory fell to a mere two months’ worth—its lowest ever, and less than half the long-term average of five months. That shortage is likely to push the average selling price in Canada up 9.1% to $620,400. Sales could increase by 7.2% in 2021 to around 584,000 units. (The only province likely not to see an increase in sales volume is Ontario due to the lack of supply there.)
All of this means Canada is likely in for another year of strong sales and price growth, especially with policy makers’ commitment to low interest rates until at least 2023, Cathcart says.
So how can REALTORS® take advantage of these market dynamics? Wassill’s advice is to keep focusing on the fundamentals: quality service, knowledge, professionalism—being a trusted advisor to clients.
“We can’t take anything for granted—a vaccine, high prices. A strong market can turn fast. Work hard because good things always happen to people who attack life that way,” he says.
Canadian Real Estate Association