The ratings giant said the housing market's prospects for next year are looking dim
![Fitch: Unemployment, weak purchasing power to hit Canadian home prices in 2021](https://cdn-res.keymedia.com/cdn-cgi/image/w=1000,h=600,f=auto/https://cdn-res.keymedia.com/cms/images/ca/046/0348_637432590352256726.jpg)
A new analysis by Fitch Ratings projects Canadian home prices to drop by 5% in 2021 due to the languid pace of the labour market’s recovery and stagnant consumer purchasing power.
“We attribute the expected decline to lower demand caused by elevated levels of unemployment and increasing affordability issues,” said Susan Hosterman, senior analyst at Fitch Ratings.
The national economy saw the addition of just 62,100 jobs in November, which was noticeably weaker than the growth observed in the seven months prior, Statistics Canada data showed.
Aside from the 2021 unemployment rate hovering above the 2015-19 average of 6.3%, home price declines might stem from weaker rent growth and dwindling immigration levels, which are expected to remain muted for several quarters.
“Rents that have recently declined by 10% to 15% in major cities are making home ownership less attractive while immigration was down by 41% year-on-year in the first seven months of 2020,” Hosterman said.
The Fitch study added that the federal government’s financial assistance programs and lenders’ payment deferral schemes, while invaluable to Canadian households, will be difficult to maintain in the long term. With these programs steadily winding down, the ratings agency is estimating a rise of 0.35% to 0.5% in the nation’s delinquency rate next year.
Still, despite these projected increases, “we do not expect the level of delinquencies, distressed sales or foreclosures to increase to the levels seen in the U.S. during the financial crisis,” Fitch said.
More sustainable gains are likely to come afterwards, with Fitch predicting a “quick recovery” in the housing market by 2022. The agency stressed, however, that this is contingent on economic activity returning to its pre-pandemic level of health.