The Canadian Housing and Mortgage Corporation (CMHC), Canada's national housing agency, has released a surprising forecast. They predict significant increases in home prices across the country over the next three years, even as they anticipate a slump in the overall economy.
Record Highs Expected for Home Prices
The CMHC forecasts a staggering 20.1% increase in average existing home prices by the end of 2026, reaching a national average of $814,900. This translates to a price increase of roughly $136,600 compared to 2023.
Economic Contradiction?
This optimistic view on housing prices stands in stark contrast to the CMHC's economic forecast. They predict sluggish economic growth, with 2024 potentially experiencing zero growth or even a recession. Modest annual growth is projected for 2025 and 2026, but overall, real GDP per capita is expected to decline, indicating a potential decrease in economic well-being for Canadians.
Employment Growth Lags Population
The CMHC anticipates employment growth to lag behind population growth over the next three years. This contradicts historical trends where strong housing markets typically coincide with robust employment figures.
Cheap Credit: The Real Driver?
While the CMHC attributes the predicted price surge to population growth exceeding new home construction, their own mortgage rate forecast suggests a different story. With minimal declines anticipated for fixed-rate mortgages, cheaper credit could be the primary driver behind rising home prices. This scenario would allow homebuyers to leverage lower borrowing costs to manage increasing home prices, potentially creating an unsustainable bubble.
Unanswered Questions and Market Discrepancies
The current market situation raises questions about the validity of the CMHC's population growth narrative. Stagnant price growth, rising delinquencies, and increasing rental vacancies across major markets contradict the expected influx of new residents looking to buy. This discrepancy highlights potential shortcomings in Canada's ability to accurately track population outflow alongside population inflow.
Conclusion
The CMHC's housing forecast presents a puzzling outlook. While Canadians may see continued affordability challenges, the predicted economic situation raises concerns about the long-term sustainability of such high housing prices. It remains to be seen whether population growth, low interest rates, or another factor will be the dominant force shaping Canada's housing market in the coming years.
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Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified professional before making any investment decisions.
