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Canada Mortgage and Housing Corporation (CMHC) has released its highly anticipated Housing Market Outlook, offering a bleak forecast for the housing market, with rising costs and shrinking supply set to create significant challenges, especially for renters.

The CMHC report traces the current affordability issues back to interest rate hikes implemented in 2022 to combat inflation. While necessary for macroeconomic stability, these hikes have eroded affordability for potential homebuyers.

Construction and rental crisis

Many have been priced out of the market due to higher mortgage rates, leading to a surge in rental demand.

“Higher interest rates made it challenging for builders and developers to get financing. This immediately slowed the construction of smaller buildings such as single-detached homes,” the report read. “We expect interest rate increases to slow apartment starts in 2024. The increased level of apartment starts in 2023 was likely the result of financing secured before interest rates began to rise.”

This has exacerbated the rental market’s challenges. “Affordability issues are most acute in the rental sector, compounded by a lack of new rental building construction,” the CMHC noted.

Economic outlook 2024

CMHC economists anticipate a weak 2024. However, the housing agency sees light at the end of the tunnel, projecting a housing market rebound in 2025-2026 as inflation cools and interest rates decline.

A key factor will be inflation. CMHC expects inflation to ease by mid-2024, reaching the 2% target range by 2025-2026. This would allow the Bank of Canada to begin lowering interest rates from mid-2024 onward.

Additionally, many Canadians will be renewing their mortgages at higher rates over the next few years, squeezing their finances further.

In response, government spending is predicted to increase to support the economy, according to the report.

Alternative scenarios

The CMHC report outlined two alternative economic scenarios reflecting current uncertainties.

The more pessimistic scenario warned of a recession in 2024 followed by a slow recovery, persistent high-interest rates, and reduced consumer spending power. This would severely affect housing affordability and dampen demand, leading to a decrease in new housing starts.

On the flip side, the more optimistic scenario anticipates a robust economic recovery, boosted by strong government spending and resilient consumer expenditures. This would likely increase demand for housing and intensify market activity, particularly in the rental sector, driven by strong population growth and improved employment outcomes for immigrants.


Story by: CMP