This year will be remembered for many reasons, and optimism is one thing that’s been in short supply since the spring. We’re experiencing a global pandemic, social unrest, an economic downturn, and natural disasters, just to name a few. The challenges brought on by the health crisis have also forced many homeowners to reevaluate their space and what they need in a home going into 2021. So, experts are forecasting that next year is one in which we can be optimistic about real estate for three key reasons:
1 The Economy Is Expected to Continue Improving
Following a record contraction of the Canadian economy in the first half of 2020, the third quarter saw a vigorous rebound in economic growth. Real GDP grew 8.9 per cent, or 40.5 per cent on an annualized basis, bringing the economy back to within 4 per cent of its pre-COVID-19 level. The distressing second wave of COVID-19 and the restrictions it has necessitated have jeopardized the recovery that’s currently underway.
However, we still expect the economy to post positive real GDP growth in the fourth quarter of 2020, though there is the risk that a renewed fear of public spaces combined with targeted restrictions will prompt a modest retracing of output.
The ultimate economic impact of COVID-19 by the end of 2020 will be a Canadian economy that is about 2 per cent smaller by year-end. That said, promising results from vaccine trials should lead to very strong growth in 2021 as pent-up spending floods back into the economy. We expect Canadian real GDP will grow by an average of 4 per cent over the next two years.
Courtesy: BCREA Economics
2 Interest Rates Are Projected to Stay Low
Along with a massive expansion of its balance sheet to facilitate QE, the Bank of Canada has also reaffirmed its plans to keep its overnight policy rate at 0.25 per cent until it sees slack in the Canadian economy fully absorbed. Given current forecasts for economic growth, that may not occur until 2023, meaning these low rates will be around for quite some time. There are, however, other factors in the economy and financial markets that may push mortgage rates marginally higher over the next year.
3 Future Home Sales Are Forecasted to Grow
Canadian real estate brokerage Royal LePage expects home prices to rise 5.5 per cent in 2021, building on unexpectedly strong growth this year, driven by a shortage of properties for sale and record low interest rates.
"The upward pressure on home prices will continue," supported by lack of supply to meet surging demand and policy makers promise to keep interest rates at record low, Royal LePage chief executive Phil Soper said.
The average Canadian home price rose more than 15 per cent in October from a year earlier to an all-time high, according to the Canadian Real Estate Association.
Royal LePage expects the shift to larger homes, which has driven a surge in sales and prices of single-family houses this year, will moderate as "life returns to normal," easing some of the pressure on condo markets.
Experts forecast that buyers and sellers are going to be active in 2021. If you’ve thought about buying or selling your home this year but have held off, now may be the time to take advantage of this market. Reach out to a local real estate expert to take the first step toward your new home today.