Statistics Canada Releases Building Permits, March 2021

March 2021 marked the third consecutive month of record-setting numbers as building permits rose 5.7% to $10.9 billion, reflecting a booming residential sector. Constant dollar estimates are available, for the first time, for the building-permit series dating back to 2011. On a constant dollar basis (2012=100), building permits increased by 4.0% to $8.1 billion, a number only surpassed by the April 2019 value of $8.2 billion.

Residential sector surges to new heights

The residential sector climbed 15.9%, clearing the $8.0 billion mark for the first time in March. Multi-family dwellings jumped 24.5% compared with February to an unprecedented $4.3 billion. This gain resulted largely from permits being issued for residential towers in the cities of Toronto, Burlington, and Vaughan.

Single-family homes also reached new heights, increasing 7.6% to $3.8 billion. The census metropolitan area of Oshawa was responsible for just over one-third of this growth.

Declines in institutional and commercial components bring down the non-residential sector

Following a month in which several major permits were issued for care facilities, institutional permits fell 33.5% to $732.1 million. Eight provinces posted a decline in this component, with Quebec (-54.5%) recording the most significant drop. Overall, the non-residential sector fell 15.6% to $2.8 billion.

Commercial permits decreased 14.6% to $1.5 billion, about 25% lower than the average monthly value reported in 2019. After declining slightly in the first two months of 2020, commercial permits took a large hit at the start of the pandemic, and have since averaged around the $1.5 billion mark observed in March.

Industrial permits, the only component to report a gain in the non-residential sector, rose 16.4% to $650.5 million. Several major permits were issued, including a new relay control centre for railroads in the city of Montréal and the Rutherford Station of the Go Transit system in the city of Vaughan.

Big start to 2021 leads to another record-setting quarter

Three consecutive monthly highs led to a record-setting first quarter, up 12.7% to $31.2 billion compared with the fourth quarter of 2020. Gains were reported in all components. On a constant dollar basis, the first quarter of 2021 posted the largest value since the start of the series in 2011 ($23.3 billion), beating out the previous record of $22.3 billion in the second quarter of 2019.

The first three months of 2021 were the highest posted in the residential sector (+15.0%). Single-family homes (+22.8%) showed stronger quarterly growth than multi-family dwellings (+8.3%) and both reached new heights by breaking previous records set in the fourth quarter of 2020.

Despite rising 7.5% in the first quarter to $9.1 billion, construction intentions for non-residential buildings have not fully recovered from the effects of the pandemic, remaining well below the peak of $10.6 billion set in the fourth quarter of 2019.

Source: Statistics Canada

More Policy Changes May Be Needed to Cool Hot Housing Markets, but Not Without More Research: National Bank CEO

National Bank of Canada CEO Louis Vachon said further action may be needed to cool hot housing markets in the next six months, but he urged policy makers and bankers to get a better grasp of the root causes that are driving home prices higher before rushing to change rules. On April 23, Mr. Vachon said there are “many moving parts” underpinning frenzied bidding and surging housing prices in markets ranging from Vancouver and Toronto to smaller towns across B.C., Ontario, Quebec and the Maritimes.

Policy makers are “fully aware” of the dangers a housing bubble could pose to the economy and social well-being, he said, and they may need to do more to keep one from building. That could include tailored measures such as ending blind bidding on homes for sale, he said. But first, he encouraged officials to conduct large-scale surveys to understand which factors driving prices higher are temporary symptoms of the pandemic, and which are likely to last. “I don’t think there’s a single, magic-wand policy that will deal with this situation,” Mr. Vachon said. “So it may have to be a number of different policy adjustments.”

Issues that Mr. Vachon wants to see studied more closely include the impact of parental support. If the “bank of mom and dad” proves to be a major contributor, he said policies designed to curb excessive borrowing may be less effective, as buyers have more capacity to boost down payments. Instead, he said the focus could “pivot from a macroeconomic risk to more social policy,” rooted in housing affordability and access. He also called for studies to gauge whether a generation of baby boomers will resume downsizing from larger homes as pandemic restrictions ease, adding much needed supply to the market, and whether a shift to remote work will permanently make houses in suburban and rural communities outside major cities more attractive.

Recent changes announced by regulators and the federal government are “helpful,” Mr. Vachon said. Canada’s banking regulator plans to make the stress test for uninsured mortgages stricter starting June 1, raising the threshold to qualify for some home loans, though critics have questioned how effective that will be. And the federal government plans to impose a 1% vacant home tax on foreign owners, while committing an additional $2.5-billion to build affordable housing.

But Mr. Vachon said there should also be public consultations on whether to keep blind bidding, a common practice in real estate that typically prevents buyers competing for a home from knowing what competing bids are offered. Critics say that can lead buyers to make irrationally high bids out of fear of losing a property, while defenders of the practice say it protects privacy and prevents bidders from being unfairly pitted against each other.

The last time regulators stepped in to cool hot housing markets in 2017 and 2018, when prices were soaring in Toronto and Vancouver, housing activity remained much more measured in Montreal, where National Bank has its headquarters. But this time, the same sort of highly competitive situations driven by multiple bids on a single home have “started to pop up in Montreal,” he said. As a result, “people are moving out” and activity is picking up in more “peripheral markets, all the way to Trois-Rivières for instance.” In Mr. Vachon’s view, Canada is “still pretty far from an excessive bubble, and even further from the bursting of it,” but he added: “Given how important it is, we don’t want to get there.”

Source: Globe and Mail

Bank of Canada Governor Says Red-Hot Housing Market Showing Signs of Speculative Behaviour

The Governor of the Bank of Canada says there are signs of speculative behaviour in the country’s booming housing market and voiced concern over the pace of mortgage borrowing among highly indebted households. Low borrowing costs and the desire for bigger properties during the pandemic have pushed home prices to record levels across the country, with smaller cities and suburbs seeing real estate values jump more than 30% over the past year.

“While the resulting house-price increases are rooted in fundamentals, we are seeing some signs of extrapolative expectations and speculative behaviour,” Tiff Macklem said. “Our concern … is that against a background of rapid price increases, people will extrapolate. They will expect that those price increases will continue indefinitely and they will overstretch to buy houses. That would be a mistake,” he said.

With home prices and resales hitting record highs month after month and mortgage borrowing increasing at its highest level in years, federal policy makers have proposed incremental measures that could slow the market. Mr. Macklem said he supported the Canadian bank regulator’s plan to make it harder for borrowers to qualify for a mortgage, as well as Ottawa’s proposal to slap a 1% tax on vacant homes owned by foreigners.

The proposal from the Office of the Superintendent of Financial Institutions would effectively require borrowers to prove they can make their mortgage payments at an interest rate of 5.25%, up from 4.79%. (This would only apply to uninsured mortgages, or those where the borrower has put a minimum down payment of 20% on the purchase price of the house.)

The Bank of Canada kept the benchmark interest rate at 0.25% during its announcement on April 21, but said a potential rate hike could occur in the latter half of 2022 instead of 2023. The idea that the key interest rate would remain near zero until 2023 has given home buyers more confidence to borrow. Mr. Macklem defended the bank’s decision to keep interest rates low, saying the bank needs to look at the whole economy, where employment is still well below prepandemic days. “Right now, the economy needs our support,” he said.

In February, Mr. Macklem said the housing market was showing early signs of “excess exuberance,” though he also said it was not as hot as it was in Ontario and British Columbia in 2016 and 2017, when home prices in Vancouver and Toronto were rapidly increasing. Now, home prices across the country are accelerating at the fastest pace on record and inventories are at their lowest level, according to Canadian Real Estate Association data.

Earlier in April, Bank of Canada staff issued a special housing-market report that examined vulnerabilities and showed that highly indebted households were borrowing at a faster pace. “When you see people taking out bigger loans relative to their income, you worry that they might be overstretching,” Mr. Macklem said.

Source: Globe and Mail

New Construction Home Prices in Toronto Area Soar as Supply Dwindles

The benchmark price of a new construction single-family home in the Toronto region has soared to a record $1.44 million in March — a 29.4% annual increase, the Building Industry and Land Development Association (BILD) reported on April 26. Condo prices also saw an annual gain of 8.3% to a benchmark of $1.04 million.

Prices continue to climb as the supply of new homes dwindles, said BILD CEO David Wilkes. The number of pre-construction, under construction and newly complete homes available for consumers to buy is approaching the record lows of 2017, he said.

“At the present rate, we have approximately two months of inventory and supply. A healthy market should be eight to 12,” said Wilkes. He said the federal and provincial governments have recognized that supply is the answer to the Toronto region’s housing challenges but not all municipalities are on board.

“We’ve got recent examples in Halton (Region) where they don’t want to increase the urban boundary to allow more supply. We’ve seen municipalities across the region indicating that the growth projections that the provincial government have to 2051 are not the projections they are planning for,” said Wilkes.

“For the last month condo activity, which has been slightly below the 10-year average since the pandemic, returned to normal,” said Wilkes. March condo sales rose 11% year over year, 42% over the decade average. With 3,297 sales of condos and stacked town homes, it was the second best March since 2000.

The 1,706 single-family home sales — including detached, semi-detached, linked and townhouses — jumped 75% compared to March 2020 — exceeding the 10-year average by 27%.

“The new condominium apartment market picked up the pace in March as the spring market got underway,” said Ryan Wyse of Altus Group, which tracks the homebuilding industry. “The number of units in new projects launched and the number of sales were both well above the March average of the past 10 years and those newly launched projects saw particularly strong sales at opening,” he said.

Wilkes attributed the strength of the lowrise and highrise markets to consistent low interest rates and the lopsided pandemic economy in which higher wage earners have kept their jobs while more precarious, hourly employees in the retail and food service sectors have felt the most severe economic impact.

Source: Toronto Star