Housing market crash unlikely … Immigration and smaller household sizes are expected to help drive prices upward.

New data released Monday by Statistics Canada found home prices increased by a mere 0.1 per in July compared with June — the smallest increase in more than two years and well below the average annual inflation rate of 7.6 per cent for that month.

But while experts are predicting the housing downturn could be the largest in four decades, they say two factors will protect the market from a full-blown crash: immigration and additional households as a result of Canadians choosing to live alone or in smaller groups.

If the rate of immigration and current changes in household formation behaviour persists, we would likely not have a housing crash over the mid-to long-term,” said Kate Choi, an associate professor of sociology at Western University.

A crash refers to a scenario where prices fall by about 30 per cent and housing demand completely erodes, said Carrie Freestone, an economist at RBC and the report co- author. The bank forecasts benchmark prices to fall by 13 per cent during this correction period — significantly less than the 30 percent threshold for a crash.

Between 2016 and 2021, the average Canadian household size declined by 0.02 people, according to a new report released Aug. 17. There were about 140,000 new households nationwide between 2016 and 2021 as a result of Canadians, especially young adults, starting out new, and that households have become smaller as more people are choosing to live alone and parents are having fewer children.

This trend will be responsible for just under 90,000 of the 555,000 new households created by 2024 and will provide a significant boost in housing demand.

“A greater number of households overall means that those households will need more housing,” said Choi. “So that, in turn, will exert an upward pressure on housing prices.”

That, paired with the federal government’s targets to bring in a record 1.3 million new permanent residents by 2024 — adding about 555,000 new households — will help drive housing demand and “contain a housing spiral.”

Between 2017 and 2019, there was a “pretty significant” housing correction because of Ontario’s Fair Housing Plan and the new federal mortgage stress test. That led to the first wave of demand, which was unleashed during the pandemic amid low-interest rates and households sitting on a significant amount of money.

However, when this housing correction period began in February, largely due to rising interest rates, the market never got a chance to fully catch up or satisfy all the organic demand that was coming through from that first correction. A caveat to the report’s findings, Choi noted, was demand and housing prices could dampen further if household size trends reverse and more young adults choose to live with their parents longer due to the rising cost of living, thus leading to fewer new households. Despite this housing correction, there is still a severe lack of housing supply to meet the demands of the market when this correction is over.