The biggest risk to Canada’s housing market in the near-term is new lockdowns in big cities that have seen COVID-19 infections surge in recent weeks.

According to an economist with Capital Economics, restrictions that may be rolled out in the coming days would put a dent in the robust sales activity recorded since summer, but would leave home prices mostly unaffected.

“The key near-term risk to the housing market is the prospect of “circuit-breaker” lockdowns in the major cities,” wrote Stephen Brown in a research note published today.

“New restrictions for Toronto [are] due to be announced later on Friday and, while the rumours so far suggest these will remain targeted to certain high-risk activities, we would not be surprised if this is the last step before all non-essential businesses are closed,” he added.

So far, Canada’s housing market has “shrugged off” worsening COVID-19 outbreaks. Brown said that a small monthly decline in home sales recorded in October could be tied back to lower inventory of homes for sale rather than pandemic fears. At the national level, the supply of unsold homes dropped to a record low of two and a half months, meaning it would take two and a half months for all homes currently listed on the market to sell at the current rate of sales.

With new restrictions aligning with the late year period and holiday season, when home sales typically slow down anyway, Brown writes that these measures “wouldn’t do much” to home prices.

The economist acknowledged that downtown condos are a weak spot for the market, but from a national perspective, they are too small to significantly shift home prices at the country-wide level.

Far more important to Brown is the potential impact of an effective vaccine on the housing market in 2021. Pfizer and Moderna have both reported the efficacy of their vaccines is at or near 95 percent. With Canada having already ordered substantial amounts of both, Brown asks if the distribution of those vaccines could reverse the rising home price trends we’ve seen this year.

It may seem like an unusual question considering the promise of a return to normalcy that the widespread distribution of these vaccines hold. But Brown writes that the pandemic was “an unexpected boon for the housing market” and COVID-19-driven policy moves by Canada’s central bank have caused mortgage rates to drop to rock bottom levels.

If mortgage rates were to begin to rise again on the back of an improving economic picture as the pandemic recedes, this could dissuade some potential buyers from entering the market.

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