11/27/2019 12:32 EST

Canadian House Prices ‘Set To Surge’ In 2020, Forecasts Say

Lower mortgage rates, help for first-time buyers and increased immigration levels are all pushing the housing market upwards.

grandriver via Getty Images
The Montreal skyline is visible between two condo buildings in the city's Griffintown neighbourhood. 

MONTREAL ― Next year is looking bright for Canada’s housing markets ― maybe too bright, if you’re hoping for more affordable housing options.

A number of new housing-market forecasts are predicting an acceleration in house prices next year, thanks to lower mortgage rates and increased demand from first-time buyers and immigrants.

The most optimistic forecast (or the most pessimistic, if you’re hoping for lower prices) comes from Capital Economics, which in a report last Friday said “momentum is building” in house price growth. If things stay at their current trend, house price growth will be running at an annual rate of 6 per cent by March of next year.

Watch: Where you can find the best value condos in Canada. Story continues below.


“The rise in the sales-to-new listing ratio suggests that house price inflation will surge,” senior Canada economist Stephen Brown wrote. 

The sales-to-new-listing ratio measures how many houses are selling against how many houses are coming on to the market. The higher the ratio, the tighter the market, so the larger the price growth you can expect.

Though it varies from market to market, in general a ratio above 60 per cent suggests price hikes ahead. According to data from the Canadian Real Estate Association, that ratio was 63.7 per cent for the country as a whole in October, well above the 54 per cent long-run average.

CIBC World Markets
This chart from CIBC shows the sales-to-new-listings ratio by province. At around 70%, Quebec's housing market is the tightest in the country, while Alberta, Saskatchewan and Newfoundland have ratios low enough to suggest stagnant or falling prices.

Brown said the increased demand for housing comes from “a combination of (lower interest rates) by central banks elsewhere in the world and expectations of interest rate cuts in Canada.”

The best rates available for a five-year fixed-rate mortgage at the major banks fell to around 2.7 per cent today from 3.5 per cent at the start of this year, Brown said, citing data from The lower rates mean Canadian buyers can afford about 10 per cent more on the purchase price of a home than they could a year ago. 

Vancouver ‘returning to buyer’s market’

In a separate forecast, real estate agency Re/Max said buyers are becoming more enthusiastic, and “increased consumer confidence could be a key factor affecting the housing market in 2020.”

The report predicted a 3.7-per-cent increase in house prices nationwide, with Toronto prices rising 6 per cent next year, roughly doubling this year’s pace.

It also sees price growth returning to Vancouver’s market after more than a year of declines. It expects the pricey west side of Vancouver will return to being a “buyer’s market” by next spring, while the east side of the city will experience a balanced market.

“B.C.’s housing market is recovering much quicker than anticipated due to improved affordability and increased housing demand, driven by lower mortgage rates, first-time buyer incentives and population growth boosted by international migration,” Central 1 Credit Union said in a report released this week.

After falling nearly 7 per cent this year, Central 1 expects house prices to rise in the Vancouver area by 3.6 per cent next year, and 6.3 per cent in 2021.

Some parts of the market ― such as Greater Vancouver and the single-family home market in Greater Toronto ― have seen price declines over the past few years, which have also helped improve affordability. A recent report from National Bank of Canada said affordability improved for three straight quarters this year, although prices still remain elevated, compared to incomes, in many cities.

But with prices expected to accelerate, many experts warn affordability could start worsening again soon. 

Policies miss the mark

And if affordability is the goal, experts are growing increasingly convinced that the solutions proposed by policymakers are missing the mark. Evan Siddall, head of Canada Mortgage and Housing Corp., is among those arguing against policies to help homebuyers, such as the Liberal government’s first-time homebuyer incentive or the Conservatives’ proposal to extend insured mortgage amortizations to 30 years.

In a market with limited supply, giving people more buying power will only drive up prices, Siddall argues. He estimates that, if all the housing policies proposed by the major political parties were put into effect, the result would be house price increases of up to $16,000 nationwide, and up to $40,000 in Toronto and $80,000 in Vancouver.

“I don’t know why this debate is still happening,” he told the Financial Post in a recent interview. “And I don’t know why people are vulnerable to it because it’s just obvious that if you push prices higher, you’re going to make the (affordability) problem worse.”

Also on HuffPost