Canada

Canadian Confidence In Home Prices Rising Hits A Record High: Mortgage Pros

Canadians have big expectations for home buying and price growth over the next year. Mortgage Pros Canada (Mortgage Pros) released its annual report, containing consumer survey results. The survey, taken at the end of 2020, shows record sentiment for home buying and price growth over the next year. William Dunning, the organization’s chief economist, says sentiment and home sales are often related. The relationship between price growth expectations and reality, however, fall short of reliable.

Canadian Home Buying Sentiment Soars

The likelihood of buying a home in the next year soared. The average response reached 3.3 points out of 10, when asked about their home buying intention in the next year. This is the highest rate in at least the past decade, and possibly the history of the Mortgage Pros survey.

Canadian Purchase Likelihood Often Precedes Home Sales

The average consumer response, when asked to rate the likelihood of them purchasing a home in the next year, from 1 to 10. This rating is compared to the ratio of homes sold to the total adult population.
Source: Mortgage Pros Canada; Better Dwelling.

The average score seems a little low, due to the fact a small segment of the population buys a home per year. Comparison of this indicator therefore needs to be looked at in context. This was a very high number relative to historic norms.

Dunning says, “expectations sometimes foreshadow what will happen to sales in the following year.” Noting sales have historically trailed sentiment, for the most part. “…a rise in the likelihood in 2013 was followed by increased sales in 2014 … a fall in the likelihood in 2016 was followed by lower sales in 2017 …  a large increase in the likelihood for 2019 was followed by a large rise for sales in 2020.”

Buyers stating their intention and following through isn’t entirely a surprise. Especially for an expensive purchase like a home, which takes years of planning. Dunning acknowledges the relationship, with exception to the 2019 surge in sentiment, and 2020 rise in sales. The relationship still works, he’s just not sure if that was a fluke. Though 2020 did start out strong prior to the pandemic, so it may not be a total coincidence. Low rates may have just poured gas on the buying expectation trend.

Canadian Expectations On Price Growth Hit A Record

Canadians have never been more confident in future home price growth. Results show an average rating of 6.94 points out of ten, when asked about the likelihood of home prices growing in the next year. Confidence increased by the third highest annual jump over the past decade. Dunning said, “expectations about house price increases have strengthened, to the highest level seen in the history of the survey.” 

Canadian Expectation of Price Growth Compared To Reality

The average consumer response, when asked to rate the likelihood of home prices rising in the next year, from 1 to 10. This rating is compared to the actual price growth in the CREA aggregate benchmark.
Source: Mortgage Pros Canada; CREA; Better Dwelling.

The economist also found this doesn’t mean what most might guess about expectations and reality. In terms of predictive power, “There is no relationship. For example, based on the flat average scores in the middle part of this chart (2015 to 2018), we would expect a stable rate of price growth. But that, clearly, did not happen.”

Running the correlation under various time series confirms a weak link at best. There’s virtually no relationship between the size of sentiment change, and the future value of home price growth. In fact, sometimes we found a correlation coefficient comes out negative, meaning the inverse was true. The buyer sentiment on prices dropped, when price growth accelerated. In other years, buyer sentiment assumed a boom, when price growth slowed. 

The general public is a poor predictor of price movement. The change in sentiment has little to do with where things are heading. However, it does appear they rise and fall during the same year. Since the survey is taken at year end, this most likely means price growth expectation is a reflection of what happened that year. Unfortunately, the average person doesn’t always have a pony in the race. If you’re not buying, and not willing to shell out a lot more, you don’t have much influence in the process. 

Canadians have big expectations for home sales and price growth over the next year. Historic data shows those big expectations for home sales, often means people do buy more homes. Prices are another story. There’s no link between consumers thinking prices will grow, and them actually growing. Basically, a lot of people are likely to buy over the next year, thinking prices will grow. They’re most likely basing this on the price growth they’ve already seen. 

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13 Comments

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  • Han Thanh 6 months ago

    Just because you think people should pay more, doesn’t mean enough people can continue to pay more. Prices function at the margin. They need to drop rates if they want more forward price growth in the next few years.

  • GTA Landlord 6 months ago

    Truly amazing to see the fastest rising prices in the world be met with “our prices go moon soon even more.” What happens when Gen Z realizes the lifestyle is much cheaper, and higher quality in other countries?

    • Secret Satan 6 months ago

      F*ck Gen Z, I’m an older Millennial, but I don’t have any kids yet and so no real reason to stay here. I have an EU passport and, while I have no real skills, people like me and I’m good at bullshit and that seems to be marketable in and of itself. I’m looking for exit doors 100%.

      • John Thunder 6 months ago

        Looks like someone hasn’t realized the average detached in the EU is 2-5x here in Canada lol

        • Bruno 6 months ago

          Depends where in “the EU” of course. The European Union has 27 member states.

          https://www.statista.com/statistics/722905/average-residential-square-meter-prices-in-eu-28-per-country

        • SH 6 months ago

          Looks like somebody knows absolutely nothing about Europe. London is the only city with comparable lack of affordability to Toronto. No European city approaches Vancouver-level unaffordability when measured against income.

          Berlin, for instance, has seen an epic run the last 3 years but is still less expensive than Toronto (and a helluva lot more interesting). Central Paris is pricey, but the metro system is vast and you can find very affordable homes within 30-45 minutes metro ride of the Louvre.

          Realtors like to contort themselves to tell people that Canadian prices are normal.

    • Ron 6 months ago

      🙂 Casing out and going back home overseas 🙂

  • Ashley 6 months ago

    No good in cashing out, time to invest more. CREA is projecting 16% prices increase for 2021. This would have most likely already been discussed and approved by Federal, Provincial and Bank of Canada. I feel realtors can do a better job in projecting economy direction than highly paid economists.
    Probably BoC should outsource policy decisions to CREA and just keep money printing job in-house.

    • Mortgage Guy 6 months ago

      I wonder how many people actually read the CREA forecast and understood it. They said 16% increase by year end. That’s 2% lower than prices were last reported.

    • Ron 6 months ago

      Cashing out and moving out of Canada is what I mean .

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