Canadian home prices to fall up to 5% in 2021, Fitch predicts

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Lenders closely monitor the financial situation of borrowers in Canada, and have historically been “proactive” by offering modifications and working with borrowers to make payments affordable, Fitch said.

Other pressures expected to drive house prices down in the coming year include declining rents and a significant drop in immigration, largely due to the pandemic.

“Rents that have recently declined by 10 per cent to 15 per cent in major cities are making home ownership less attractive while immigration was down by 41 per cent year-on-year in the first seven months of 2020,” Hosterman wrote, adding that the ratings agency expects immigration to remain low through next year.

A mortgage affordability stress test is expected to put further pressure on home prices.

The ratings agency expects a quick recovery in the housing market in 2022, provided economic activity returns to pre-pandemic levels.

Canada’s residential real estate prices have been on a tear this year after pent-up demand in the early months of the pandemic led to a surge. Sales were driven, in part, by a large number of people working from home and generally spending more time there as everything from travel to restaurant dining remained restricted to control the spread of COVID-19.

Average home prices in October were down slightly from September, but still up 15.1 per cent from a year earlier.

Rishi Sondhi, an economist at Toronto-Dominion Bank, said in a Nov. 16 report that the trends were likely to continue for the balance of the year, but warned that affordability pressures were mounting in expensive markets such as Toronto, which would make sustaining the growth difficult in the longer term.

Fitch is projecting an increase of seven per cent for all of 2020, but suggests the forces weighing on home prices will lead to a decline of three to five per cent next year.

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