While COVID-19 has adversely affected almost every aspect of daily life, its effect on the housing market was unexpected. With construction shrinking 3.4 percent in 2020, it’s predicted to grow by 0.6 percent in 2021, reviving far faster than expected.
As Canada rolls out its vaccinations and loosens lock-down restrictions, and the government implements a long-term infrastructure plan, the economy – along with new housing construction and sales – is on track to not only survive but thrive.
New home construction across the country has certainly profited from increased investment in residential building construction coupled with low interest rates. The 18-month-long series of lock-downs and forced remote-working situations has also led to a higher demand for new homes and alternative living conditions.
Too close for comfort
In fact, the stresses of working from home and too much “together time” in close proximity seem to have fuelled a desire for new living accommodation in many families who have endured months of enforced togetherness.
Information from Statistics Canada shows that the residential construction market was seven percent above its pre-pandemic levels in December 2020. While Canada is expected to continue to grow this coming year due to the government’s plans to invigorate the economy, new and unexpected variants of the COVID disease – as they continue to emerge – will possibly toss curve balls to any future growth plans, making it difficult to predict upcoming housing trends.
There’s no doubt that the national housing market is red hot at the moment, however. Both construction numbers and sale prices are unprecedented. As the pandemic restrictions are gradually relaxed and more vaccines are administered – permitting more personal freedom – Canadians are able to access the housing market more readily.
The warmer weather has also played a significant role in the spike in sales across the country as Canadians emerge from a long, cold cocoon of isolation to access new housing across the country.
Up, up and away
While new home construction has continued to boom throughout most of the pandemic, housing prices themselves are another issue to consider. With all-time sales records newly established, Canada’s average home-selling prices have rocketed 31.6 percent over the past year, also hitting a new and all-time record, according to figures from the Canadian Real Estate Association.
With an average home selling price of $716,828, there’s definitely a seller’s market in play right now. This trend, however, is giving economists serious cause for concern as they worry that first-time buyers will be unable to purchase a home at all unless they decide to take on potentially unmanageable mortgages, and face the prospect of being financially crippled a little further down the road.
The pandemic has played an important determining factor here, as it appears that the demand for detached homes in smaller cities has been driven by access to low interest rates and an understandable desire for more space during these claustrophobic times.
This, however, has created concern regarding the imbalance between “supply and demand” across the country, with the appearance of greater numbers of people who want to buy houses than there are houses for sale, a major factor in driving up the price of the limited supply of homes available.
Rising home prices have recently spurred construction, with housing starts expected to reach 235,000 this year, the highest number in all the years since 1987. Over the next decade, industry analysts expect that housing completions will reach almost 2.2 million, faster than the formation of 1.9 million new households.
Of course, as the country’s housing requirements start to slow, it’s expected that home construction should be able to re-balance supply and demand in the market.
According to data from Statistics Canada, annual population growth is expected to steadily decline from about 1.1 percent in the next few years to around 0.7 percent in 2050. As the country’s population inevitably ages, with 35 percent of households being seniors by 2050, this will naturally also reduce the growth of new households.
Too much building, too few builders
However, Canada’s construction industry is also dealing with several serious issues apart from COVID, including the ongoing exorbitant price of lumber and a national shortage of skilled tradespeople to fill essential construction jobs. Working to address and resolve all of these society-impacting issues successfully could take years of remedial activity and continue to affect the industry at large.
For construction, it’s the lack of skilled labour that is most concerning, as the industry looks to redress its shortages and find new sources of workers. Between 2020 and 2029, 131,000 workers are expected to retire from the residential labour force, with only 105,800 new workers coming from local populations.
Because of this the industry will increasingly need to employ non-traditional sources of construction labour, including women, Indigenous people, and new Canadians, which is good news for those looking to take on employment in a new field. The residential construction industry is also expected to see its wages rise by about three percent annually between 2022 and 2025.
Catching the wave
The pressure of selling at the right time followed by purchasing only what you can afford is stressful, to say the least. There’s a worrying development that many buyers are spending more than they should simply because there are limited options available, without truly understanding the negative impact of overspending on personal and financial health down the road.
And conditions brought on by the pandemic, such as the record low mortgage rates, a shift in where people want to live, and limited supply, have all led to choices that may not always be the most beneficial financially.
The present writer was personally fortunate enough to be able to navigate through these conditions and take advantage of this situation, putting her own home up for sale this past March. Several houses in the area had sold for much more than they might have even a year ago, and when the writer’s house went on the market, it was snapped up in less than a week for a better price than anticipated.
Although the writer felt justifiably lucky to have sold when she did, she was also decidedly fortunate to be able to buy in the same town for an affordable amount. Not everyone manages this.
Upon closing in May, the writer’s real estate lawyer remarked that he had never seen a busier month in his entire career, and driving through the city it’s easy to believe – every street seems to have at least one For Sale sign on it.
How long will this trend last? Economists say the current spike in prices brought on by COVID is unsustainable, but there may not necessarily be a crash in the absence of a steep rise in mortgage rates or a major change in housing policy.
Of course the market will eventually cool, but even when mortgage rates start to climb again, rising incomes should keep housing affordable for average Canadian households.
Making smart, informed choices about both selling and buying is one that every homeowner – or potential buyer – needs to seriously consider before wading into the currently fluctuating housing market.
Doing thorough research and knowing what’s available and how trends are being driven is the best way to keep your investment sound.
