Canadian real estate- Montreal housing market update – agency montreal-immo

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CMHC’s recent announcement that average home prices in Canada will drop by 9 to 18% in the next 12 months and the effects of COVID-19 on the housing sector will be more noticeable by 2022. It is possible to analyze economic data such as: rising unemployment rate, decreasing national GDP, falling interest rates, rising public debt, migration, tourism and international students falling etc.

The following is an analysis based on figures:

1- Canada’s GDP decreases

Firstly, with the parameters that we have such as Canada’s GDP in the first quarter as of May 29, 2020, there has been a significant reduction in the past 11 years.

The Canadian economy shrank 2.1 percent on quarter in the first three months of 2020, after expanding 0.1 percent in the previous period. It was the sharpest contraction since Q1 2009, reflecting measures imposed in March to contain the coronavirus pandemic, including non-essential business closures, border shutdowns, and travel restrictions. Household spending dropped at a record 2.3%, amid job losses, income uncertainty, and limited opportunities to spend. Also, government expenditure fell 1 percent, the sharpest drop since Q1 2013, mainly due to school closures and curtailed government administration.

In addition, the government expenditure fell by 1%, the sharpest decline since Q1 2013, mainly due to school closures and limited government management. In addition, business investment in machinery and equipment are decreased in the fourth straaight quarter at -3.5%. Exports fell 3%, imports fell at a lighter 2.8%, due to the major trading partners implementing similar public health measures. It is considered that at the annual rate, in fact, GDP has decreased by 8.2%, the highest level since Q1 2009, after increasing by 0.6%, this number was adjusted to increase in the previous period.

Calendar	GMT	Reference	Actual	Previous	Consensus	TEForecast
2019-08-30	12:30 PM		Q2	0.9%	0.1%		0.4%
2019-11-29	01:30 PM		Q3	0.3%	0.9%		0.2%
2020-02-28	01:30 PM		Q4	0.1%	0.3%		0.1%
2020-05-29	12:30 PM		Q1	-2.1%	0.1%		-2.6%
2020-08-28	12:30 PM		Q2		-2.1%		-3%
2020-12-01	01:30 PM		Q3				-1.5%

GDP in the second quarter is expected to be -3%. This is a very large number to be announced on August 28, 2020.

2- The unemployment rate is high, retail and service industries are declining

The unemployment rate across the country and cities is high, currently at 13.7%. The highest figure has been 4 decades since 1982 with 13.1%, while businesses are starting to resume operations gradually after being forced to close. It is noted that Quebec tried to operate its economy earlier than other provinces. The retail, service, and tourism businesses are currently in a tragic state due to the closure since March 2020.

3- International students, immigrants, tourists reduced

Airports and consumer flights are not yet operational. The number of immigrants to major cities in Canada will also decrease by 35% as in the case of GTA. The number of tourists entering cities will also decrease.

International students and students will also be lessened when disease fears flare up again as the second wave in the fall and schools also announce “distance learning” programs.

But as soon as the COVID-19 pandemic began, forced to ban travel and close the border in March, the Liberals government developed its next three-year plan on immigration.

The government calls for immigration to 341,000 permanent residents by 2020, 351,000 by 2021 and 361,000 by 2022, which is a record high.

4- Increasing public debt and falling interest rates

Information shows that the economy may fall into recession from quarter 2-2020 until the second quarter of 2021 or longer. Bank interest rates will probably drop to nearly 0% as in 2007. Lower interest rates will lead to inflation. This has the effect of adjusting the prices of the real estate market. Currently, the government’s public debt is 685.45 Billions. The federal deficit is likely to reach $ 252B this year, according to the Budget Watchdog, which says that public debt has soared in the recent bailouts.

Predictions of the banks, CMHC and QPAREB

In the 1981 recession, the largest home price adjustment to date, prices fell 9.2%. But this time, the National Bank of Canada forecasts at 9.8%. In addition to the recent announcement by CMHC that average home prices in Canada will drop by 9 to 18% over the next 12 months and the effects of COVID-19 on the housing sector will be more noticeable by 2022.

According to a report from the QPAREB Quebec Professional Association of Real Estate Broker, the CMHC’s forecasts are inaccurate for the real estate market situation in Quebec. Unlike the real estate market of the western provinces of Canada, the Quebec market shows a better historical stability when it comes to real estate uncertainty. APCIQ believes that CMHC’s forecast of housing prices for 2020 in Quebec is overvalued.

In addition, the announcement of the CMHC about the change in mortgage conditions with “the down payment” in a secured mortgage from 5% to 10% starting in July 1st. At the same time, CMHC is lowering the credit minimum of 680 and prohibit some borrowings to limit risks when the real estate market goes down. But Genworth Canada announced that they do not have a plan like the CMHC.

In real estate markets in Canada, Montreal has a slower rate of increase compared to Toronto and Vancouver in all types of housing. According to the below chart is condos, the type of house with have the most transactions.

Thus, according to the banks and CMHC, the forecast does model region variances, with the largest drops in expensive cities the real estate market will have the largest reduction in some expensive cities. Toronto real estate prices are forecasted to fall 13% from the end of the year through next year. Vancouver real estate prices are forecasted to fall 12% over the same period mentioned above. Montreal, which only started to climb quickly recently, is expected to see a 7% price decline. Montreal’s price gains lagged national gains, so a smaller impact wouldn’t be a surprise.

Andy Pham B.Com. Finance AEO

Chartered Real Estate Broker

AGENCY MONTREAL-IMMO