The seemingly unstoppable ascent of home values will extend into 2021 — if the latest prominent forecasts prove true, that is.
Take the Canadian Real Estate Association (CREA). It’s forecasting a 9.1% rise in the national average home price in 2021, to approximately $620,000.
And CREA isn’t alone in predicting continued house price appreciation in the new year. RE/MAX Canada is forecasting price growth of between 4% and 6%, while Royal LePage is forecasting a 5.5% increase.
“While we’ve seen a significant shift in buyer preferences this year, we believe factors such as the supply issue, pent-up demand and historically lower interest rates will continue to fuel activity in 2021,” Elton Ash, a regional executive vice president at RE/MAX, said in a release.
Not All Forecasts So Rosy
Some are not so optimistic about real estate next year, however. Interestingly, they happen not to be real estate organizations.
Of the Big 6 Banks, RBC and Scotiabank both expect nominal price growth of just 0.6% and 0.4%, respectively, over the next 12 months, reports Global News. They cite continued economic headwinds due to the pandemic, weakness in regional condo markets and mounting affordability concerns.
Others, like Fitch Ratings, project that “Declining rents, a significant drop in immigration and the B-20 mortgage affordability stress test will put pressure on Canadian home prices, which are expected to decline by 3%-5% in 2021 due to elevated unemployment levels and affordability issues,” the company said in a release.
Potential Mortgage Costs
Clearly, there’s no way of knowing which forecast will pan out. But one thing is almost certain: mortgage carrying costs will change in 2021.
Below are what you can expect for the best- and worst-case scenarios. Use these ballpark numbers to evaluate the potential impact on your budget.
Assuming prices jump 9.1%, per CREA
- Future average home price: $620,400
- Minimum insured down payment (6%): $37,224 (+$3,102 vs. today)
- Monthly mortgage payment at 1.33%: $2,285
- Minimum uninsured down payment (20%): $124,080 (+$10,340 vs. today)
- Monthly mortgage payment at 1.58%: $2,002
Assuming prices drop 5%, per Fitch
- Future average home price: $540,265
- Minimum insured down payment (6%): $32,415 (-$1,707 vs. today)
- Monthly mortgage payment at 1.33%: $1,990
- Minimum uninsured down payment (20%): $108,053 (-$5,687 vs. today)
- Monthly mortgage payment at 1.58%: $1,744
*Interest rates used are the current lowest widely available mortgage rates quoted on RATESDOTCA. Assumes a 25-year amortization.
What to Make of It
The difference between these best- and worst-case predictions amounts to a difference in monthly payments of $250-300.
That’s not negligible, but it’s not a catastrophic swing either.
The takeaway is that price outcomes aren’t going to radically change lives, one way or the other. A lot of people fret about prices running away from them or prices crashing. The best advice is to keep your head down, toss predictions aside and buy right, regardless of price trends.
That means not overextending yourself, having a reasonably long-term holding period, buying the best value in a desirable location, and being patient. It’s always possible to upgrade later.
By following that approach, real estate will be profitable for you long-term, regardless of 2021 prices.