Canada’s economy will be in the shitter, but at least the cost of shelter will rise, eh. That’s the takeaway in the latest housing forecast from the CMHC, Canada’s national housing agency. The state-owned mortgage insurance firm is calling record existing home prices alongside a weakening economy. They attribute the increase almost exclusively to a rising population, but most of that growth can be seen from their mortgage rate forecast.
CMHC Forecasts Existing Home Prices Will Surge 20% Higher
The CMHC sees home prices rising at a face-ripping rate across the country. They’re currently forecasting the average sale price of an existing home will rise 20.1% (+$136,600) by the end of 2026. It goes from $678,300 in 2023 to a whopping $814,900 in 2026.
Canada’s National Housing Agency Is Forecasting Huge Price Growth Despite Weak Economy
The CREA average sale price for existing homes (actual), compared to the CMHC baseline, pessimistic, and optimistic scenario forecasts.
Source: CREA; CMHC; Better Dwelling.
Hard to believe in the current environment, but most of this growth is forecast next year (isn’t it always?). Existing home prices are seen rising 4.9% (+$33,100) in 2024, before nearly doubling the rate to 9.5% (+$67,900) next year. The third forecast year would then see moderation and the slowest growth, with prices rising 4.6% (+$35,500). The slowest annual growth is still roughly 10% of the average sale price of a home just a decade prior.
Easy to see how this is possible in a great economy, but that isn’t what the agency sees coming for households.
Canadian Economy Expected To Grind To A Halt, Slow Growth Ahead
Despite this home price boom, the CMHC sees economic input moving less ambitiously. Real GDP is forecast to rise 4.7% over the 3 year forecast ending in 2026. Breaking it down, growth is 0% for the current year and implies negative quarters wiping out the current growth we’re seeing. So happy recession! Or is it merry recession, I can never remember.
Modest annual growth is seen in 2025 (+1.9%) and 2026 (+2.8%), even coming in a little ambitious in the final year. However, population growth would still outpace these numbers in the event it performed like historical growth from 2017, excluding the anomalies of 2020 and 2021. This indicates real GDP per capita will continue to fall, implying worsening economic prosperity for the general population.
Canadian Employment Forecast To Lag Population Growth
A worse economy is typically accompanied by slow employment, a point they’re consistent with. The agency expects employment to grow 3.8% over the 3 year span, with 2024 seeing just a third of the growth rate observed last year. Once again, accounting for typical population growth, even slower than the current rate, employment would lag. It’s not typical for home prices to show robust growth during rising unemployment, but moving on.
Cheap Credit Likely The Biggest Driver, Despite Population Claim
What could possibly drive the growth? The CMHC attributes an increase in shelter costs to the continued population boom, seen outpacing new homes. Especially since new home starts are forecast to slow even further, as profitability and building costs get in the way. Taking a peak at their mortgage rate forecast, that’s unlikely.
The agency isn’t forecasting much of a decline for the 5-year fixed rate mortgage. Their outlook has the average rate shedding 0.3 points to 5.7% by 2026. If one forecasts 3% annual wage growth over this period, an average household would see leverage rise roughly 13%, or two-thirds of the forecast price increase. In other words, cheaper credit will almost certainly do most of the heavy lifting in the event their forecast is correct.
What isn’t addressed at all is the current environment not reflecting the population growth narrative. Home prices have barely moved, price growth is stagnant, delinquencies are rising, and most perplexing—rental vacancies are climbing across major regions like Greater Toronto, where the vacancy rate is now twice pre-pandemic levels. It’s easy to argue home purchases were delayed and will come next year (see? Always a year away). However, if the population isn’t buying, they should be renting—but that’s not reflected by the rising vacancy rates. This should bring a lot more attention to the fact Canada is better at tracking its population inflow than outflow.
