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As we head into 2021, a piece is still missing from the housing puzzle

Yes, the pandemic did depress activity in the resale housing market during Q2 2020 in what is nor...

Yes, the pandemic did depress activity in the resale housing market during Q2 2020 in what is normally a hyper-busy spring season – but does this subsequent pent-up demand truly account for the mad rush we continue to see through the end of the year?

I point back to a column I did in May, referencing April home resale numbers. Deal flow was down sharply, but selling prices made healthy gains.

The explanation for this apparent contradiction was simple – the number of active buyers and sellers had declined in tandem. Demand remained in balance with supply.

Sharp housing rebound

Then things picked up . . . and picked up some more. Buyers appeared to outstrip sellers. The question that continues to be asked is where has all this demand come from?

It should be apparent by now there is no one single answer. It can only be attributed to a rare conjunction of factors not limited to the following:

* pent-up demand from a depressed spring season;

* COVID cabin fever as people decide to make a change they may have already been considering;

* the shift in remote working that has people reconsidering their housing options.

On that last point – I have written before how many people may now be opting for more space to better accommodate a home office or two, or to find more social distance than is possible in a multiresidential environment.

More data is beginning to emerge that bears this out. For example, this story, “Canada’s hottest housing markets are slowing — and condos are their Achilles heel,” looks at the November home sales numbers for Canada’s two biggest markets, Toronto and Vancouver.

In brief, single-family home sales are on a tear at the expense of that condo in the sky.

How long can it continue?

In that same story, Jason Mercer, chief market analyst with the Toronto Regional Real Estate Board, suggested it may be a short-term phenomenon: “Once we move into the post-COVID period, we will start to see a resumption of population growth, both from immigration and a return of non-permanent residents.

“This will lead to an increase in demand for condominium apartments in the ownership and rental markets.”

But what of the other factors that may be contributing to home-buying decisions in the current environment?

On Dec. 4, mortgage rates in Canada fell below one per cent for what is believed to be the first time.

Granted, this particular offering is for a variable rate mortgage of 0.99 per cent, available only to high-ratio insured mortgages that protect the lender in case of default. However, we are also seeing fixed-rate mortgages as low as 1.5 per cent. And it’s all because of historically low bond yields.

What about inflation?

What I find interesting is that asset prices are up, but inflation is virtually nil. Statistics Canada reported the Consumer Price Index was up a mere 0.7 per cent in October from a year ago. Other trackers in the past couple of weeks show it is drifting even lower for year end.

The gains being experienced by stocks and real estate as we end the year are not being experienced with general consumer goods. The CPI excludes housing, but does include mortgage cost.

Mortgage rates when we bought our house 30-plus years ago were about 12.5 per cent, with a monthly principle plus interest (PI) payment per $100,000 of $1,067. Today, with a fixed-rate mortgage that could easily be 1.67 per cent, the PI per $100,000 would be $407.

Without any other changes, the same household income can support 2.6 times the mortgage debt today as compared to 30-plus years ago.

Does it all add up?

But . . . I could take the contrarian view and point out mortgage rates and the general cost of borrowing, while not this low, has still been hovering at historic lows for years. Inflation, too, had been relatively tame in recent years before the pandemic.

Are this year’s dips in both truly enough to account for, and drive, this heated pace of activity in housing markets across the country as we head into a new year?

After all, in many cases, the asking price of a home is much more than 2.6 times what it was three decades ago – data from Statista shows that median household income (unadjusted for inflation) has risen by just under three per cent annually in the most recent 18 of those years.

While our larger cities do tend to have a higher concentration of wealthier households, the median household income in Canada overall is certainly not triple what it was in the late 1980s.

And let’s not overlook the fact the pandemic has left millions of Canadians facing financial hardship this year, or that first-time homebuyers must still pass a mortgage stress test that requires them to qualify at a hypothetical mortgage rate of over four per cent.

(As an aside, I attended a webinar on money laundering. The presenter indicated there is no evidence the rapid Canada-wide increases in house prices is a result of any fraud.)

But then we have those anecdotal cases I have personally seen in my neck of the woods, or read about in the media, of dramatic bidding wars for a listed property. The losing bidders who made such bold offers on a home are likely not homeless today. And they all appear to have similar abilities to support debt.

Given all this, are the factors I have cited in this column truly enough to account for why there appear to be so many buyers on the market and such heat in the housing market overall?

Something seems wonky to me.

Some underlying contributing factor has yet to be fully understood or articulated. As we head into 2021, we still have more questions than we do sound answers.

To discuss this or any valuation topic in the context of your property, please contact me at I am always interested in your feedback and suggestions for future articles.

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