These five trends will drive real estate markets this year

26 August 2021 by Nadine Labbé
Image of several white cardboard houses and a red one

Learn about the five current trends in real estate according to Nadine Labbé, Vice-President – Retail Financing Solutions at National Bank.

COVID-19 has had an impact on real estate markets, there’s no doubt about it. Lockdown, remote work, business closures, and travel and other restrictions have influenced many people’s decision to buy or sell their property. Here are a few trends to watch over the next year.

1. “Rural flight” should slow down

While the pandemic boosted demand in suburban and rural areas, the return to usual socialization patterns will once again attract shoppers downtown.  

Young people will always be drawn to downtown life. Being able to get around on foot and having easy access to restaurants, entertainment, and diverse neighbourhoods will once again be top of mind. 

Urban commuters have been steadily moving to suburban areas for years now, partly because of the high cost of housing in the city. The pandemic has intensified this trend. The real news is that buyers have been looking even further afield, in rural areas. The lockdown and mandatory remote work have encouraged many families who were planning on leaving the city someday to make the move now. 

Interest in real estate markets far from big urban centres is starting to tail off. But with flexible work arrangements and people dividing their time between home and office, buyers still have something to think about. 

In my opinion, although many families from big Canadian cities may continue to heed the call of country life, this trend should slow down and stabilize as downtown areas come back to life.

2. Housing prices may continue to rise

Real estate transactions peaked in 20201. Demand has been strong, and average prices have increased significantly across Canada, particularly around Montreal.

Low availability and competitive interest rates could continue to put upward pressure on house prices until at least 2022. First-time homebuyers may have a harder time for quite some while.

This trend has resulted in some reckless behaviour. Many buyers have waived pre-purchase inspections and legal warranties. Some have made purchase offers without even visiting the property.

Emotions can get the better of you when you purchase something as big as real estate. People sometimes act impulsively when their heart is set on a home. But they could come to rue their choice of property, neighbourhood or other features.

Buying a property takes planning. Getting professional advice is a great idea—to draw up a budget, get a mortgage preapproved and add up all the costs involved, including taxes, renovations, notary fees and moving expenses.

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3. A new influx of immigrants may boost rental demand

Housing demand is supported by population growth, which in turn is largely driven by immigration. However, lower immigration levels did not bring down property prices or decrease sales volume in 2020.

Newcomers almost always become tenants upon arrival in Canada. Only after a few years do they take steps toward buying a home. With immigration set to rise in 2022 given the new targets announced by the federal government, there should be an impact on short- and medium-term rental demand, but not on the purchase and sale of homes, which will remain unaffected for now.

While construction of rental housing hit new highs in 2020 and is expected to remain high until 2023, rents in big urban centres should be going nowhere but up. 

4. Condos should remain popular

The pandemic has made certain lifestyle choices more popular. Many people now working from home have rediscovered the joy of having a big yard or being on the water or close to mountains. Some wondered if the condo market was going to take a hit.

I don’t think so. This type of housing meets the specific needs of a certain clientele, namely young urban professionals, students with financial support and real estate investors, among others. Condos may also remain popular with first-time homebuyers, who often can’t afford a single-family home, especially in large urban centres where prices are high. 

In Quebec for example, the number of transactions increased more quickly for condos than single-family homes in recent months. Some condos used for short-term rental were put up for sale as owners saw an opportunity to get a good price for assets that were no longer easy to rent out as people hunkered down.

5. Mortgage rates could rise 

Predicting the direction of mortgage rates is always risky, as they are subject to market forces and the state of the economy in general. However, we have good reason to believe that interest rates, which remain very low despite recent increases, should increase gradually over the next year.

The Bank of Canada is closely monitoring the current level of inflation, which is trending upward after more than a year and a half of crisis. However, in a recent announcement,2 the Bank indicated that the key rate should remain on hold until at least the second half of 2022, to allow for a solid economic recovery.

This does not mean that borrowers should be negotiating 5-year fixed-rate mortgage loans. Whether they choose fixed or variable financing should depend on what their needs and preferences are, including how tolerant they are of fluctuating rates, how able they are to cope with higher mortgage payments, and their short, medium and long-term plans.

In short, buying a home continues to be an emotional choice and an important moment in any person’s or family’s life. While the pandemic has accentuated certain phenomena and caused a frenzy of transactions, my observation is that the markets could stabilize over the next 12 months.

1 National Statistics: Canadian home sales continue to normalize in June, July 15, 2021 

2 Monetary Policy Report Press Conference Opening Statement, July 14, 2021

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