February was yet another scorching hot month for the Canadian housing market. As home price increases and bidding wars become more and more frequent, many observers are hoping for a slight cool-down.
An RBC Economics report released this Tuesday cautioned "the housing market is far from risk-free." 2020 predictions of a dip in the housing market were dispelled, but as Robert Hogue explained, “the main near-term risk is overheating, not price collapse.”
“Super-strong demand is quickly depleting inventories across the country. Competition between buyers is extremely fierce in many markets (including smaller ones), and a ‘fear of missing out’ is taking hold. Such dynamics often lead to self-reinforcing price trends.”
One of the dangers of a too-frenzied housing market is that it pushes prices far-passed what can be justified by current market conditions. The market becomes extremely vulnerable to a correction or crash when an event such as a rise in interest rates or a policy announcement causes bullish sentiment to turn bearish.
The RBC report was released just as real estate boards began reporting their February figures. Greater Vancouver saw a staggering 73% jump in home sales compared to regular levels for the month, as Calgary reported a 62% increase.
“Metro Vancouver’s housing market is experiencing seller’s market conditions. The supply of listings for sale isn’t keeping up with the demand we’re seeing. Competition amongst home buyers is causing upward pressure on home prices,” stated Colette Gerber, chair of the Real Estate Board of Greater Vancouver.
Calgary real estate board followed suit in declaring the city a competitive sellers' market.
“Much of the strong sales activity is expected to be driven by exceptionally low mortgage rates,” Ann-Marie Lurie, chief economist at the Calgary Real Estate Board, explained in a statement.
“Confidence is also likely improving as vaccine rollouts are underway. Additionally, some of the worst fears concerning the energy sector are easing with recent gains in energy prices.”
Hogue listed several potential perils to the housing market of the future, notably continuous elevated unemployment levels - a problem that could cripple the market if it persists beyond the existence of government support programs. "And if current low levels of immigration were to continue, that could put downward pressure on the market as well" Hogue wrote.