Will There Be A Major Housing Crash In 2021?

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Canada’s housing market was full of surprises this year. The average house price has risen 17% despite numerous predictions that prices would decline. Near the beginning of the pandemic, the CMHC predicted that house prices would decline 9% to 18%. However, exactly the opposite has actually happened!

The experts may have been proven wrong, or their reasoning is just a matter of time. A few believe that the big crash will indeed come, as the economy is slowly starting to pick up again in 2021. If this ends up happening, new homeowners in 2020 are going to be disappointed. Fortunately, there’s some good news in this story as well.

A strong second wave

Despite being at the beginning of the vaccine rollout, there is a strong second wave of hospitalizations and deaths unfortunately taking place. It may be why Canada’s housing market could crash.

When the pandemic surges, lockdowns tend to accompany it. When lockdowns are initiated, people lose their jobs. When people lose their jobs, they can’t make mortgage payments. In theory, all of this should be bad for the housing market.

Just recently, our Prime Minister made it clear to premiers across the country to stop prioritizing the economy and lockdown as much as needed. In the initial Spring lockdown, there was no housing crash. However, there were a number of financial supports available at the time that aren’t available now — the biggest one among them is mortgage deferrals. However, these deferrals mostly expired at the end of the summer. This means that, in the event of a second wave resulting in mass unemployment, more Canadians will be forced to sell their homes – unless another round of deferrals is rolled out.

Low interest rates: the saving grace?

It should be pointed out that, although there are reasons to think the housing market could crash in 2021, there are other signs pointing in the opposite direction.

One of those is low interest rates. In response to the pandemic, the Bank of Canada slashed interest rates, and mortgage rates quickly followed suit. This undoubtedly contributed to the bullishness in Canadian housing this year. When it’s cheaper to borrow, more people buy homes.

Perhaps the effect of this cheap borrowing has been enough to offset mass unemployment. But if another nation-wide lockdown hits, it’s quite likely that many Canadians will lose their ability to make their mortgage payments at all.

An alternative to housing

If you’re worried that Canada’s housing bubble will pop in 2021, there are plenty of alternative investments you can consider.

One of the best?

REITs.

REITs are pooled investment vehicles that invest directly in real estate. To an extent, they’re subject to the same risk factors that housing itself is. But not all of them are. The ones that aren’t make solid real estate bets in 2020.

That’s a huge advantage. When a REIT leases to private tenants, their income is vulnerable to government shutdowns. Government backed revenue lessens that risk considerably.