By Mumal Rathore
BENGALURU (Reuters) - Canadian home prices, which rallied more sharply than expected this year, are set to rise by less than consumer inflation next year as higher unemployment and lower immigration levels cool down the market, a Reuters poll of analysts showed.
The resource-rich economy went into its deepest recession on record this year due to the coronavirus pandemic that shuttered businesses and halted trade. Over 150,000 people have been infected in Canada.
But the economy has recovered significantly over the past month, cushioned by the Bank of Canada's cumulative 150 basis points of interest rate cuts and massive fiscal spending by the government, with expectations for a faster economic recovery than most of its trading partners.
Housing starts hit a 13-year high in July and home prices rose at their fastest pace in over three years, suggesting a solid rebound, recent data showed.
The Sept. 15-25 poll of 14 property market analysts and economists showed house prices would rise 6.0% on average this year nationally, the highest prediction since polling began for this period in November 2018. Three months ago, they were expected to rise only 1.5% in 2020.
"Housing has been quite resilient so far, most likely reflecting a backlog of projects on hold from the spring lockdown, pent-up demand from higher income households that were less affected by the pandemic and ultra-low interest rates," said Tony Stillo, director of Canada economics at Oxford Economics.
"While new federal income support programs should lessen downside risks, several government emergency support programmes are set to expire this fall and we expect a modest retreat in housing activity and lower prices later this year and through mid-2021, especially in urban condo markets."
For next year, house prices were expected to rise 1.0%, compared with a 1.2% fall predicted in the June poll. But in a worst-case scenario, Canadian house prices were predicted to rise only 2.0% in 2020 and fall 10.0% next year.
"The housing market will face its toughest challenge in 2021 as the combo of disposable income, low mortgage rates and deferrals, that helped boost the market in 2020, reverse course and work against prices," said Brendan LaCerda, senior economist at Moody's (NYSE:MCO) Analytics.
In Toronto, house prices were expected to rise 9.0% this year and 2.0% next year, compared to 3.0% and -3.1%, respectively, predicted in the previous survey.
For Vancouver, house prices were forecast to rise 3.3% this year and 2.0% in 2021, compared to a 1.8% and 2.9% fall predicted in June.
Still, eight of 13 economists with a view said the risks to their outlook were skewed more to the downside, citing high unemployment and lower immigration as the biggest hurdles to the Canadian housing market over the coming year.
"Unemployment rate will remain high throughout 2021. A supplemental risk is a worldwide second wave in the pandemic which would stop international migration flows which in Canada are vital to sustain housing demand," said Marc Pinsonneault, senior economist at National Bank of Canada (OTC:NTIOF).
(Reporting and polling by Mumal Rathore; Editing by Ross Finley and Bernadette Baum) OLUSECON Reuters US Online Report Economy 20200930T011500+0000