Canadian Housing Starts Hit New Record in March After Climbing 21.6%

The annual pace of housing starts in Canada soared 21.6 % in March compared with February, according to Canada Mortgage and Housing Corp.’s latest report. The seasonally adjusted annual rate of housing starts rose to 335,200 units, up from 275,567 in February, the federal housing agency said in a report on April 19.

The increase in housing starts reflected very elevated levels of activity in January and March, said CMHC’s chief economist. “Multi-family SAAR starts rebounded strongly following decline in February, with Toronto and Vancouver registering particularly large gains in this segment,“ said Bob Dugan. Multiple urban starts, jumped 33.8% to 222,358 units.

CMHC said it uses the trend measure with the monthly standalone seasonally adjusted annual rate (SAAR) of housing starts to obtain a complete picture of Canada’s housing market. “Single-detached SAAR starts also contributed to the increase in the overall trend in March, but by a relatively modest amount in comparison to multi-family starts,” Dugan said. Single-detached urban starts rose 3.6%.

The annual pace of urban starts rose 24.4 % in the month to 300,973 as the pace of starts of apartments, condos and other types of multiple-unit housing projects climbed 33.8 % to 222,358 units. The annual rate of single-detached urban starts rose 3.6 % to 78,615. Rural starts were estimated at a seasonally adjusted annual rate of 34,227 units.

CMHC said the six-month moving average of the monthly seasonally adjusted annual rates was 273,664 in March, up from 252,636 in February.

Source: CHMC
Source: Globe and Mail
Source: Toronto Star
Source: Financial Post


Canadian Home Sales Up 76% Year-Over-Year, Set New Records in March

Statistics released by the Canadian Real Estate Association (CREA) show national home sales set another all-time record in March 2021 as increased supply became available.

Summary:

  • National home sales rose 5.2% on a month-over-month (m-o-m) basis in March.
  • Actual (not seasonally adjusted) activity was up 76.2% year-over-year (y-o-y).
  • The number of newly listed properties jumped another 7.5% from February to March.
  • There were only 1.7 months of inventory on a national basis at the end of March 2021 – the lowest reading on record for this measure.
  • The MLS® Home Price Index (HPI) rose 3.1% m-o-m and was up 20.1% y-o-y.
  • The actual (not seasonally adjusted) national average sale price posted a 31.6% y-o-y gain in March.

Home sales recorded over Canadian MLS® Systems climbed 5.2% between February and March 2021 to set another new all-time record. In the face of continuing strong demand, the increase in sales was likely the result of an increase in new supply.

The month-over-month increase in national sales activity from February to March was broad-based and generally in line with locations where more new listings became available. Sales gains were largest in March in Greater Vancouver, Calgary, Edmonton, Hamilton-Burlington and Ottawa.

Actual (not seasonally adjusted) sales activity posted a 76.2% y-o-y gain in March, though year-over-year comparisons will be extremely stretched this spring because of last year’s initial lockdown period.

In line with heightened activity since last summer, sales set a new record for the month of March by a considerable margin (almost 22,000 transactions). In fact, the 76,259 residential properties that traded hands via Canadian MLS® Systems in March 2021 marked the highest level of activity of any month in history, nearly 14,000 more sales than the previous record set last July.

“Seeing how many homes were bought and sold in March 2021, one could be forgiven for thinking the market just continues to strengthen, and maybe to some extent it is,” stated Cliff Stevenson, Chair of CREA. “The real issue is not strength in housing markets but imbalance. That demand has been around for months, but with the shortages in supply we have across so much of Canada, a lot of that demand has been pressuring prices. So the big rebound in new supply to start the spring market is the relief valve we need the most to get that demand playing out more on the sales side of things and less on the price side. That said, it will take a lot more than one month of record new listings, but it looks like we may finally be rounding the corner on these extremely unbalanced housing market conditions,” continued Stevenson.

CREA believes homeowners who were unwilling to sell during the health crisis might emerge from the pandemic ready to list, but warned current levels of demand could dissipate by then. “We’ll only know in the fullness of time, but March certainly did nothing to disprove the idea,” said CREA chief economist Shaun Cathcart in a release. “That said, the third wave of COVID-19 could throw a wrench into the works of a potential supply recovery this spring.”

Source: CREA
Source: Toronto Star
Source: Globe and Mail


Cool Off Canada’s Housing Market — Carefully, Urges RBC CEO

The CEO of Canada’s largest bank says “modest” short-term action by policy-makers is needed to cool the housing market, but cautioned against changes to the principal-residence exemption from capital gains taxes. Dave McKay said the government and regulators can “tweak” existing tools, such as the mortgage stress test, to help slow overheated demand for housing in the face of supply constraints.

Home prices across the country were up more than 17% year-over-year as of February, according to the Canadian Real Estate Association, which reported surges of 30% to 35% in certain markets surrounding the GTA and many parts of cottage country. The Toronto Regional Real Estate Board said  that the average price of a home in the city in March was nearly $1.1 million.

“I do think some action will be necessary to cool this in the short term,” McKay said, pointing to huge demand fuelled by ultralow interest rates and massive consumer savings during the pandemic, when discretionary spending on travel and entertainment has been curtailed.

He said Canadian consumers have about $180 billion more in cash savings than they would usually carry. Meanwhile, amid a shift in preference for space to work remotely, supply of single-family homes has not kept up, he said, as urban planning has favoured increasing density with condo towers.

However, McKay said any measures taken should be “modest,” adding, “We don’t have to overreact to this. We can tweak some of our policies (and) try to slow down demand while supply catches up.”

His comments came at the same time that the Office of the Superintendent of Financial Institutions (OSFI), which regulates Canadian banks, proposed changes to the stress test for uninsured mortgages — changes that would make it harder to qualify for a loan.

The B-20 stress test applies to borrowers who put down more than one-fifth of the purchase price of a home. To show they could handle a change in circumstances, they must qualify for a mortgage at the higher of two alternative interest rates: either one that’s 2% more than the bank rate they are being offered, or the Bank of Canada’s five-year benchmark rate, which currently sits at 4.79%. OSFI proposed increasing the minimum floor to 5.25%.

While McKay had not seen the OSFI proposal at the time of his remarks, he said the general principle behind it makes sense. “The banks have this mechanism already built into their adjudication process. So we can implement this quickly and make an immediate impact,” he said.

In a report from late March, RBC senior economist Robert Hogue called for a “policy response” on the housing market, writing, “Policy-makers should put everything on the table, including sacred cows” like the principal-residence exemption.

McKay, however, said he does not support any move to tax principal residences, saying it would be “politically unacceptable to start with” and would not address the fundamental issue of supply and demand. “Your primary residence is such an important store of value,” he said, adding that being able to sell a home without paying a tax on its increase in value is crucial to letting people move freely and migrate for work. “I think (ending the exemption is) bad policy and RBC does not recommend it.”

Several of Canada’s major-bank CEOs have commented on the housing market over the past week as the influential financial players held their annual general meetings. None have called for dramatic interventions to curb demand.

Victor Dodig, CEO of Canadian Imperial Bank of Commerce, said policy-makers should encourage more housing supply with more urban and suburban density, along with transit infrastructure and policies to free up lands (those that aren’t environmentally protected) in newer towns.

With the federal budget due in just over a week, McKay cautioned Ottawa not to overspend. He said it is unclear how much that high consumer savings and a commitment from the Bank of Canada to keep interest rates low will stimulate the economy and added, “I would counsel that we don’t want to overdo this.”

Still, McKay said he is concerned about small businesses, particularly restaurants, that have faced “confusing signals” around reopening amid multiple government closures, including the recent shutdown order in Ontario. “We have to take some of that stimulus we thought we’d be giving out one way and we’re going to need that to bridge the very challenging impact (for small businesses),” he said.

Source: Toronto Star


Economists Warn Canada’s Housing Market May Be in for a Nasty Tumble

Toronto’s red-hot housing market is giving David Rosenberg flashbacks to the early aughts, when the U.S. housing market entered a bubble that ended in disaster. “We’re in a very unstable position,” said Rosenberg, who now runs Rosenberg Research & Associates Inc., in Toronto. “Based on all the metrics I have — home price-to-rent ratios, home price-to-income ratios, or how much the household sector was overexposed to residential real estate — these numbers are higher now than they were during the U.S. housing bubble.”

The stark warning comes as record-low interest rates and soaring demand for housing during the COVID-19 pandemic have pushed real estate prices to new heights. While Canada Mortgage and Housing Corp. and the Toronto Regional Real Estate Board say there’s little risk if the market stumbles, Rosenberg doesn’t buy it. He posits that if prices go down in the residential market it could be dire for the economy. If interest rates are hiked, leaving homebuyers — who bought during the pandemic to take advantage of historic low rates — to pay more on their mortgage than they anticipated, then “there will be hell to pay,” says Rosenberg.

“It reminds me of (then-chair of the U.S. Federal Reserve) Ben Bernanke telling the public in 2006, ‘Oh, don’t worry, house prices never go down,’ ” he said. “So when I warned that there was a bubble and that it would burst, people thought I was from the Flat Earth Society. I was laughed out of meeting rooms.”

Rosenberg turned out to be right. The U.S. market crashed in 2008 as a result of defaults on consolidated mortgage-backed securities and subprime housing loans that banks offered to practically anyone who asked, regardless of credit score. Economists note that the level of predatory lending that helped fuel the subprime mortgage crisis doesn’t exist to the same degree in Canada. But Rosenberg isn’t alone in warning that the broader economy could suffer from a housing bubble.

University of Waterloo economist Jean-Paul Lam admits he is among the majority of housing market observers, including the CMHC experts, who got it wrong a year ago. Nobody predicted a pandemic-induced recession would accelerate demand to this year’s levels. He now expects the appetite for real estate to continue, if not grow, as the pandemic wanes. The advent of mass vaccinations will see Canada’s economic growth exceed pre-pandemic levels. “As long as interest rates remain low and employment keeps growing and we have a healthy labour market, I don’t see a quick correction in housing prices,” said Lam.

The $2-trillion economic stimulus in the U.S. will also stoke the Canadian economy, he said. Despite his optimism, Lam understands the alarm that has some bank economists calling for cooling measures because he says we don’t know enough about what is feeding the demand — whether there are more sinister speculative forces that are driving up prices.

A capital-gains tax on principal residences in Canada — something that has been floated as a cooling measure on the market — won’t solve the housing affordability challenge, said Ben Rabidoux, president of market research firm North Cove Advisors. Rabidoux said he has always supported policies that cooled housing demand — measures such as the B-20 mortgage stress test, which requires borrowers to qualify for a loan 2% higher than the bank rate they are being offered. But at this point, he said, “It couldn’t be more obvious that the solution has to come from the supply side.”

Canadian residential construction is at near-record levels for condos and a 50-year high for rentals. But single-family home construction is at 20-year lows and that is where supply is most constrained, he said.

John Pasalis of Toronto’s Realosophy real estate brokerage says the Bank of Canada’s low-interest policy has driven up housing demand to aid the economic recovery. That isn’t something easily cured by policy intervention. “I don’t think the BoC is at fault for lowering rates,” Pasalis said. But, “It probably wasn’t the best approach for the bank to tell everybody that rates are going to stay low for three years. Their bigger issues are their messaging.”

The more compelling argument for policy interventions to discourage investment buying is the housing market’s impact on business investment, he said. “Investment in real estate is toppling everything. They need to make it harder for real estate to be the financial windfall for investors. Single-family homes are for homeowners, not investors,” said Pasalis.

Rabidoux also sees a risk in diverting capital from business into real estate speculation. “It used to be in Canada if you wanted to get wealthy, you would create a business. Now it feels like the road to riches is borrow as much as you can and buy,” he said.

He points out that the impact of policies aimed at cooling housing demand are inevitably short-lived. “Demand is like water. It finds the path of least resistance,” said Rabidoux. “It’s so ingrained in the Canadian psyche that real estate is a pillar of personal planning. People will just find ways to make it happen.”

Source: Toronto Star


Millennials Are Taking Advantage of Low-Rate Window to Jump Into Housing Market

A quarter of millennials have purchased homes in the past year, as the pandemic has created a near-perfect window of opportunity for them to buy, according to a new poll. Eye-wateringly low interest rates, bulked up savings and the availability of remote work has made homeownership more attractive, even if affordability is decreasing, said John Webster, Scotiabank’s head of real estate secured lending.

The Bank of Nova Scotia released results on April 8 from a housing poll that looked at the pandemic’s influence on Canadians and their interest in buying and selling. The poll found that close to 40% of millennials aged 18 to 34 accelerated their plans to buy a home because of low interest rates. “It’s a very attractive time,” said Webster. Even if affordability is decreasing, the fear-of-missing-out factor is still top of mind, he said.

While condos in city cores may have once been the only option millennials could pursue, due to the proximity to their jobs and price factors, that has now changed, Webster said. Millennials want space, both outdoors and indoors, to accommodate the new work-from-home lifestyle, he said. The pandemic also put a stop to most discretionary spending.

Add that to prices that have gone up 25% from last year. Webster said millennials are thinking, “‘Why would I wait another year if I can manage the downpayment because it looks like it’ll be more expensive next year?’”

The poll was conducted by Maru/Blue from March 17 to March 19, with 3,017 survey responses collected from a random sample of panel members. An error rate was not provided.

Source: Financial Post


Soaring Home Prices Forcing Some Young Canadians to Abandon Homeownership Dreams

Skyrocketing home prices have convinced a large number of young Canadians to abandon their dreams of homeownership for good, says a recent poll. According to the RBC Spring Housing Poll released this week, 36% of Canadians under 40 who aren’t homeowners think buying a house has become permanently out of their reach. That number rises to 39% in Ontario and 41% in the Western provinces, which include British Columbia, Alberta, Saskatchewan and Manitoba.

The poll, which surveyed 2,000 people over the age of 18, found 62% of all Canadians expect most people to be priced out of the market in the next decade. But not every Canadian is so cynical. 30% say they plan on jumping into the housing market in the next two years — an 8% increase over last year. “The road to homeownership isn’t always easy and the last year has created both challenges and opportunities for homebuyers,” Amit Sahasrabudhe, vice-president of home equity financing, products and acquisitions at RBC, said in a news release.

Canada’s housing market has been booming amid the pandemic, fuelled by low rates, extra savings, a belief prices will keep rising and a shift to remote work that has some looking for more space. Along with all that, Canadians remain big believers in homeownership: 83% of those polled think housing is a good investment.

Still, RBC cautions that those looking to buy scrutinize their finances to ensure they don’t end up becoming “house poor” — a situation when over 30% of a household’s budget gets eaten up by mortgage payments, property tax bills and other home costs.

That could be a challenge: 48% of those planning to buy say their budget is less than $500,000. And the national average selling price of a home in March was $716,828 — a new record according to the Canadian Real Estate Association. That’s up up 31.6% from a year earlier.

“In addition to evaluating what you can afford now, potential home buyers should put their finances through a stress test to see if they can continue to carry the cost of owning a home if interest rates increase or if they had an unexpected expense or income loss,” Sahasrabudhe said.

Policymakers have grown concerned in recent weeks amid increasing activity in Canada’s housing market. The Office of the Superintendent of Financial Institutions proposed changes to the mortgage stress test to help ensure homebuyers don’t overextend themselves and in turn trigger loan losses at the banks. Finance Minister Chrystia Freeland also said in a statement that the government is keeping a close eye on the situation.

 Source: Financial Post