Far from generating less demand in residential real estate, the pandemic is putting even greater pressure on all G7 countries except Japan. Within this group, which accounts for 65% of the world economy, the case of Canada is the one that attracts the most attention. Since 2005, house prices in this country have risen three times faster than in the rest of the major economies. The data as of September 2020 show that while Canadians paid 8.27% more than in 2019, in the United States the increase was less than half, reaching 3.45%.
The most recent report from the Canadian Real Estate Association warns that the trend will increase, and by the end of 2021, the average house price would increase by 16.5%, going from US $ 665,000 to US $ 679,341. Although this ‘housing boom’ had already been present before the pandemic, travel restrictions and the new telework culture have increased people’s interest in looking for larger spaces, while the vacation budget is being transferred to the purchase of real estate.
This situation is generating that in some urban centers the purchase offers for a house exceed by 20% or 30% the value requested by the owner. In Toronto alone, the median house price has risen 15% in the last year, and it is expected that before the end of 2021 that value will exceed, for the first time, a million dollars. Hence, some have warned of the existence of a mortgage bubble. However, the issuer has indicated that, for now, there are no excesses in the market that could give rise to such concern.
“It must be recognized that what happened in 2020 in the housing market was very unusual in the sense that there was a period in which the market was completely closed, when the restrictions were strict and generalized; then there was a reopening, therefore, there was a release of the repressed demand ”, explained the Deputy Governor of the Central Bank, Lawrence Schembri.
This increase in house prices is in line with the level of household debt to acquire it. On average, for every dollar that a household receives, it generates obligations of US $ 1.86, which places Canada with the highest indicator within the G7, and according to OECD data.
With a mortgage interest rate at its lowest level in the last eight years, hovering around 2.1% per year, and with no expectations that it will increase in the next two years, it is highly probable that indebtedness will continue to grow.
The combination of these factors has led to the share of the housing market in the Canadian economy being close to 10%, while in the United States it accounts for only 5% of its gross domestic product.
“We spend a lot more on keeping a roof over our heads than on machines, factories and artificial intelligence. This is fundamentally unhealthy, ”says Sal Guatieri, senior economist at the Bank of Montreal.
Today, on average, in Canada the sale of 80 houses is closed every hour, so the national inventory of listed properties would only be enough to cover two months. Hence, one of the biggest challenges is precisely the expansion of the offer, something that according to the sector could happen once the contagion rate of the virus drops significantly and people feel more comfortable showing their houses.
Similarly, the construction of new projects is expected to be reactivated when the supply chain of materials is fully normalized.
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