Will COVID-19 Trigger a Housing Market Crash in Canada?

Canada’s once strong housing market is in the grip of uncertainty after the COVID-19 pandemic has increased the risk of values crashing.

Community homes

Image source: Getty Images

The COVID-19 pandemic has brought Canada’s robust housing market to a standstill. At a time when millions of people are losing their jobs and the economy is entering a deep recession, homeowners are worried if this sudden shock will force the values of their biggest asset to crash.

Just before the pandemic hit Canada, the fundamentals of the housing market were quite strong. There was a huge pent-up demand following the government’s two years of efforts to curb speculation. 

Those measures helped bring some stability to the housing market, as stringent mortgage rules made it tougher for people to qualify for loans.

But the spread of COVID-19 and the government’s social-distancing measures have totally changed the dynamics in the housing market, raising fears of a housing market crash.

These fears are not unfounded. The latest market data shows that listings are drying up, open houses have been cancelled, and buyers are staying home. 

An outcome that resembles a market crash will have profound implications for Canada ,where real estate, along with residential building construction, accounted for almost 15% of Canada’s output last year.

The housing sector has been a key driver of growth in Toronto, Vancouver, and Montreal, where an influx of immigrants has fed a boom in activity in everything from architecture and design to insurance and lending.

Profound implications

“The buoyant market has also been central to the massive wealth effect that has been driving consumption in recent years. The value of real estate assets owned by households has risen by $2.5 trillion over the past decade, an increase of 80%,” according to a Bloomberg report.

But the housing market crash isn’t what the nation’s largest lender, Royal Bank of Canada, is predicting. 

This year’s home resales could dive by 30% to a 20-year low due to physical-distancing rules, according to RBC analyst Robert Hogue.

Hogue said home prices could stay stable in the near term, as both buyers and new listings pull back, but he expects the composite benchmark price to fall 2.9% in the second half of this year compared with last year.

The trends, however, could reverse next year, as low interest rates, a strengthening job market, and a bounce back in immigration help sales to surge more than 40% in 2021 and price dynamics also return to favouring sellers, according to Hogue forecast.

The latest market data from the nation’s largest real estate market, Toronto, is reflecting that trend. While sales in and around Toronto fell 66% in April from March on a seasonally adjusted basis, the average selling price was little changed. On a year-over-year basis, the benchmark price rose 10%.

If a housing market crash occurs in Canada, then it will have huge implications for the nation’s top lenders, especially for Canadian Imperial Bank of Commerce, which has the biggest uninsured portfolio of mortgages among the top Canadian banks. The lender will struggle if homeowners fail to pay their mortgages.

The bottom line

I don’t think the Canadian housing market is going to crash. I’m in the camp of those forecasters who believe Canada has a robust housing market due to increasing demand from a rising population and the shortage of housing. Still, investors should be careful and adjust their strategy if they see a severe slowdown.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor has no position in the stocks mentioned in this report.

More on Coronavirus

Aircraft wing plane

1 TSX Stock Down 60% That Could Bounce Back Stronger

Air Canada (TSX:AC) stock got severely beaten down in the March 2020 COVID crash. Here's why it's probably not going…

Read more »

A bull and bear face off.
Stocks for Beginners

Down 30% in 3 Months, Is AC Stock a Buy Today?

Air Canada stock (TSX:AC) climbed this year and is still up 10% in the last year, but down 30% in…

Read more »

Airport and plane
Stocks for Beginners

This Bargain Stock Is the Cheapest It’s Been in Years

This top stock still trades below $25 per share, despite much positive movement. A strong opportunity could be in the…

Read more »

Hands holding trophy cup on sky background
Stocks for Beginners

Here’s Why Shopify Stock Can Be a Long-term Winner

Shopify stock (TSX:SHOP) is still lightyears away from where it was at all-time highs, but those prices could be reached…

Read more »

Coworkers standing near a wall
Stocks for Beginners

Everyone Is Talking About This Stock: Is It a Good Long-term Option?

NFI stock (TSX:NFI) reported record earnings this week, with a huge backlog and production ramp up. So why did shares…

Read more »

stock market
Tech Stocks

A Bull Market Could Be Here: 3 Reasons to Buy WELL Stock

WELL stock (TSX:WELL) may have crashed since the lifting of pandemic restrictions, but after 18 record quarters, it's time to…

Read more »

Airport and plane
Stocks for Beginners

Afraid You Missed Your Chance With This High-Flying Stock? Think Again

Bombardier stock (TSX:BBD.B) continues to experience major demand for its business jets, which is why now is the time to…

Read more »


Stocks With Stamina: 3 Plays That Stayed Healthy Even During COVID

COVID was a good litmus test to differentiate resilient stocks from the rest. These stocks might be viable options, even…

Read more »