Canada’s federal housing agency is sticking to its pessimistic forecast for the future of the country’s housing market, citing “tremendous” risks from the COVID-19 pandemic.

Canada Mortgage and Housing Corp. forecast in May that average prices would fall between 9 per cent and 18 per cent from pre-pandemic levels before beginning to recover in the first half of 2021. Chief Economist Bob Dugan reiterated that forecast, though he cautioned that it’s difficult to predict the “peaks and troughs” and there are many moving parts.

“When I say I stand by our forecasts, it’s really with respect to what are the broad trends we expect moving forward,” Dugan said Monday on a conference call with reporters. “When I look at the housing market there are a tremendous number of risks.”

Canada’s housing market has not only defied expectations of a slowdown, it’s booming, even as the economy suffers from the deepest downturn since the Great Depression. Demand for homes combined with tight inventory levels and historically low interest rates are driving gains.

In its latest housing market outlook, released in May, the agency predicted an average price of $460,292 (US$345,900) in the first quarter 2021, based on the midpoint of a high and low range. The average price for August, reported last week by the Canadian Real Estate Association, was $586,000. That means if CMHC’s forecast is correct, prices would plunge 21 per cent between now and the end of March next year.

Unsustainable Demand

While Dugan wouldn’t confirm the scale of price declines, he did say the direction was correct. He also said he wasn’t convinced recent demand is sustainable.

“I’m not convinced that we have a sustainable basis for housing demand in the economic disturbance that’s going on related to COVID-19,” he said. “That’s why I say I stand by the forecasts.”

Pent-up demand has been formidable, driving the country’s housing market to new heights. Nationally, sales jumped 6.2 per cent in August, the fourth straight month of strong gains after the market froze at the height of the COVID-19 pandemic, CREA said last week. Sales are now 33.5 per cent above year-earlier levels. Benchmark prices rose 1.7 per cent in August and are now 9.4 per cent higher than in August 2019.

But Dugan doesn’t see it lasting, at least until a vaccine arrives.

“Now if I’m wrong on the timing of trough, that could happen, but I certainly believe in the overall trend that there’s scope for price declines, for weaker demand and after that resolves itself eventually a recovery once we have a vaccine in place,” he said.

--With assistance from Erik Hertzberg.