How does one predict the future in an ever-changing, unstable economy? The world is full of uncertainty now, and making predictions about any industry is a pretty massive undertaking.
However, having some kind of expectation of the future of local real estate can save home buyers, home sellers, and any other people involved in real estate a lot of time, money, and stress. Consider this article a breakdown and prediction of Montreal real estate in 2021.
The goal of this article is not to tell you what necessarily “will definitely happen,” but to inform you what is most likely to happen in Montreal real-estate based on a variety of factors and projections, and prepare you for the coming year.
The Current Situation
Increase in Property Sales
Since the end of the second quarter of 2020, Montreal real estate sales have drastically increased and had continuously outpaced the same period in 2019.
Montreal Property Sales: Q3 of 2020 (APCIQ)
Montreal Property Sales: Q4 of 2020 (APCIQ)
The Quebec Professional Association of Real Estate Brokers (QPAREB) stated that province-wide, sales in all property categories have continued to increase into 2021 (CTV). According to the Canadian Real Estate Association, home sales set another all-time record in January, with the actual average sale price for the country increasing 22.8% from the previous year (Financial Post).
Increase in Home Prices
The increasing demand for homes and limited supply, which will be touched on later, drove the prices of homes up significantly in Montreal in 2020. Other Canadian cities have experienced a general decline in condo prices while house prices accelerated, but Montreal home values have increased across all categories, which will push potential home buyers out of the market (MortgageSandbox).
According to Centris.ca, the median price for all residential property types have risen across the board, again confirming the rising prices of real estate.
Increasing Demand and Decreasing Supply
Partially due to the increased unemployment rate, mortgage rates in Montreal are at historic lows. Mortgage qualifying rates, however, haven’t decreased in parallel (MortgageSandbox). These low rates have incentivized people who otherwise could not afford to pay off their mortgage to purchase homes, leading to the decreasing supply of homes.
The increase of demand is primarily driven by the psychological effects of the pandemic and resulting restrictions. Simply put: when people are stuck at home, they desire larger living spaces. This, along with the ability for many to be able to work remotely, resulted in an increase of people moving to the suburbs of Montreal (MortgageSandbox).
The Hidden Power of Millennials
According to a recent Royal LePage demographic survey, 48% of Canadians aged 25 to 35 currently own their home, and a quarter of these homeowners purchased a property during the pandemic. Among non-homeowners, there is a strong intention to purchase in the future (84%), with 68% planning to make the move in the next five years (Newswire).
Phil Soper, the CEO of Royal Lepage, stated that "The pandemic provided an unexpected prize for young Canadians -- a path to home ownership. Mortgage rates fell to historically low levels and the competition for entry-level housing lessened” (Newswire).
Young people are one of the key drivers behind the rapidly increasing demand and home prices. In Quebec specifically, demand from millennial buyers have flooded the suburban real estate market during the pandemic. This was a result of low interest rates, the ability to work remotely and the desire to invest in long-term quality of life (Newswire).
Overall: The Market Has Grown Enormously, But Where Will It Go?
Based on all of the above information, we can see that the Montreal real estate market has grown enormously over the past year. However, the staggering growth of some market areas seems to have settled down. While August saw a whopping 50% increase in sales over last summer, in November we saw only a 31% increase over the same month last year (CTV). All of these factors have tilted the market towards sellers.
So, of course, the big question is: what will happen in 2021? With the steady roll-out of vaccines and 10% of surveyed Canadians planning on immediately returning to work (MS), what will happen to real estate sales, prices, and supply/demand by the end of the year?
Factors to Consider
The rapid increase of real estate prices makes for a relatively unpredictable future for many Montrealers, leading to already-expensive properties being over-valuated in a seller’s market (CTV).
However, despite the unstable economy resulting from the pandemic, most surveyed Quebecers are relatively confident about the industry, especially among millennials (Newswire).
Things are starting to settle down, and it is highly unlikely that the staggering growth of property sales and prices will continue.
The Prediction
Home Sales
RBC has stated that in the coming few months, they expect real estate demand to stay relatively steady, as low interest rates and other factors continue to drive a market in which some policymakers are already seeing signs of froth (Financial Post).
However, despite continuously low interest rates, short-term core demand for homes will likely be lowered quite a bit by the backend of 2021 (MS). The rollout of vaccines and return to in-person work will normalize the industry to an extent and bring home demand back to a regular figure.
Moreover, banks are very likely going to increase interest rates in the coming year (CTV), leading to significantly fewer people wanting to buy a home at this time. This also means that the bank will not pre-approve as many people’s mortgages. In my opinion, both of these factors will contribute to a decrease in homebuyers in late 2021-2022.
PREDICTION: In 2022, there will be a significant dip of homebuyers in the market. This will eventually normalize within 1-2 years, returning to the 5-10% yearly increase that the market experienced between 2017-2019.
Home Prices
According to the Financial Post, the base-case economic outlook the bank uses for calculating expected credit costs foresees overall Canadian housing prices rising approximately 4.9% over the next year.
Based on a variety of sources, residential property prices are expected to dip in 2021. This will be, in part, due to the market normalizing. Due to the significant shortage of homebuyers that we expect in late 2021-2022, the prices of homes are likely to drop accordingly. The currently low interest rates are also expected to increase by the end of 2021, reducing demand from buyers and driving down home prices.
This being said, there has been an upward trend in home prices in Montreal for years now, and this upward trend is expected to continue by the end of 2022 onwards.
PREDICTION: Home prices will decrease by the backend of 2021 into 2022 due to increasing interest rates and declining demand. By late 2022 to 2023, home prices will begin increasing at a slow rate.
Prediction Summary
In 2020, Montreal real estate market saw enormous demand growth, leading to high home prices and increasingly limited supply. The median home prices grew exponentially, especially over the summer, all of which leads to a clear seller’s market. Additionally, the psychological effects of stay-at-home orders and huge increase in demand among millennials drove the market to never-before-seen heights.
Though saying that things will “return to normal” is definitely a stretch, people’s general confidence in the industry and the pandemic coming to an end will certainly lead the market to re-adjust and normalize. The serious growth that was seen over the pandemic inevitably has to settle at some point, and it has already slowed down over the past few months.
The increase in interest rates and change in mortgage qualifying rates will inevitably drive homebuyer demand down significantly by the end of 2021. This means that there will be more homes on the market. Due to the decreased demand, home prices will drop between 5-10% accordingly. All of this, however, will normalize to the growth rate seen in previous years after 2022-2023.
But don’t just take our word for it. We have compiled a list of numerous 2021 Canadian housing market predictions for 2021! We assembled 12 sources’ predictions on how home prices will change in Canada in 2021. Take a look below:
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