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RBC report on Canada's housing market

Housing Market Risks are Easing: RBC

After reaching overheated territory earlier this year, risks to the country’s housing market are now easing as prices and activity moderate.

That’s the assessment from RBC Economics’ latest Housing Health Check, which noted that “still-solid” demand—particularly in the resale market—and low inventories are keeping the odds of a price collapse low.

“This winters frenzy raised significant concerns that extrapolative price expectations would drive up property values to excessive levels,” the report reads. “With the market shifting to a more sustainable pace, the risk of an uncontrolled upward price spiral has considerably diminished. We expect prices to flatten by early next year.”

Despite prices easing over the summer, the sharp run-up since last year has worsened affordability, with the situation remaining “severe” in Vancouver and Toronto, while the issue is becoming “more problematic” in Montreal.

Here’s an assessment of how Canada’s four largest housing markets are faring:


Activity in Canada’s largest housing market has been slowing since the spring. A drop in listings has kept the market “extremely tight” and prices under upwards pressure, RBC noted.

“Overstretched affordability remains a significant issue and top vulnerability,” the report said. “A dip in population growth poses a risk though will be shortlived.”


The city saw a spike in activity over the winter that has since been partly reversed. Despite lower sales, demand remains high for limited inventory, which has maintained support for prices. “Despite improving since late2018, housing affordability is exceedingly poor and a major source of vulnerability,” RBC said.


The market saw a moderation in the existing home market to more sustainable levels over the summer. Despite the slower pace of price appreciation, RBC sees little risk of a sharp decline in prices as it remains a seller’s market. “Affordability is a moderate but growing strain. Elevated rental apartment construction warrants close monitoring.”


Calgary’s housing market experienced a “solid” recovery over the past year due to a drop in inventory of existing and newly built homes, which in turn led to a rise in prices. “Demandsupply conditions are in fact the tightest theyve been in years, which points to further price gains in the near term,” the report noted.


Source: RBC Economics


Other Key Factors Impacting the Housing Market

RBC’s review of housing market vulnerability identified several factors to watch over the near-to-medium term:

  • Interest rates – While low rates have served as a “powerful tailwind” throughout the pandemic, “the wind could switch direction if inflation fears cause interest rates to rise.” While rates are forecast to remain where they are until mid-2022, expectations are that they will climb higher soon after.
  • Labour market – If restrictions continue to ease in the economy’s hard-hit sectors, that will lead to a further rise in employment and in turn reduce risk to the housing market.
  • Immigration – The drop in immigration since the start of the pandemic translated into lower demand than there otherwise would have been, although the impact was primarily on the rental market, RBC noted. Activity has already started to pick up this year, but if low immigration persists, “the effect could spread to the homeownership market.”
  • Housing inventory – Despite inventory levels remaining “extraordinarily” low, activity is cooling and fewer buyers are participating in bidding wards, “a sign peak demand is behind us in this cycle.” The report notes that construction of single-family homes is below historical averages, meaning there’s little risk of overbuilding. In the multiple-unit segment (condos), “record-high levels of apartments under construction…generate some potential absorption risks over the medium-term.”