Housing Market Moderates in April Compared to March

The furious pace of home sales that kicked off the year started to slow in April as the number of homes sold that month fell by 12.5% compared with the all-time record high set in March, the Canadian Real Estate Association said. The association said 60,967 homes sold across the country last month, down from 69,702 in March, while close to 85% of all local markets, including almost all of B.C. and Ontario, saw sales declines. However, sales in April were still a record for the month and up 256% compared with a year ago, when the onset of COVID-19 kept people out of the market.

Meray Mansour, a realtor in Toronto, said the market remained hot in April, but was cooler than it had been in months prior. In the Toronto neighbourhoods of Leslieville, High Park, Beaches and Junction, where she does most of her business, Mansour said homes are still changing hands at a rapid pace and generating plenty of competition. “There are still multiple offers,” she said. “Maybe before it was like, 30 offers. Now they’re getting like six, so it’s still crazy.”

The sales came as the number of newly listed homes fell to 81,124 in April, a decrease of 5.4% from 85,779 in March. Canada had about two months worth of housing supply available, up from a record low 1.7 months in March, but still well above the long-term average of five months, according to the report.

CREA’s April Home Price Index is up 2.4% from March, with the seasonally adjusted national average home price hitting $723,500; that’s 23% higher than April, 2020, and 56.7% higher than five years ago. But it is lower than the 3% rise recorded in March, and lower still than February’s 3.3%.

“Remember that prices this time last year were not depressed, so this is true strength,” said economist Robert Kavcic in a research note for BMO Capital Markets. “Over the past six months, prices are up 29% annualized; and over the past three months they’re up 37% annualized. And, those are national figures that mask the fact that some markets (especially cottage country) are up more than 70% annualized over the past three months.”

Even though interest and sales in many markets remain high, Bank of Montreal senior economist Robert Kavcic was seeing signs of “buyer fatigue.” Mortgage pre-approvals being at record-low rates, the Bank of Canada’s “more hawkish tilt” on interest rates and prolonged stay-at-home orders in Ontario have caused momentum in the market to fade, he said in a note to investors. 

“There might finally be some light at the end of the pandemic tunnel even though (COVID-19) cases were still high in April,” he said. But that doesn’t mean the big city has lost its allure and the market won’t reach the dizzying highs it did at the start of the year.

When stay-at-home orders are lifted and immigrants are allowed to settle in Canada at a pre-pandemic pace, Mansour expects the Toronto market to rise again. “I believe it’s going to get crazy, especially in Toronto because people are going to be coming back to work or to school,” she said.

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

CMHC Says Annual Pace of Housing Starts in Canada Slowed in April

Canada Mortgage and Housing Corp. says the annual pace of housing starts fell nearly 20% in April as the pace of multiple-unit housing projects slowed. The housing agency says the annual pace of starts for April was 268,631 units, down from 334,759 units in March.

CMHC says the annual pace of urban starts fell 16.9% in April to 251,504 units as the pace of starts of apartments, condos and other types of multiple-unit housing projects dropped 22.8% to 251,504 units.

The annual rate of single-detached urban starts edged down 0.1% to 78,918. Rural starts were estimated at a seasonally adjusted annual rate of 17,127 units. 

The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was 279,055 units in April, up from 272,164 in March. “The national trend in housing starts remained elevated in April, despite a decline in the level of monthly SAAR starts from the record high set in March,” said Bob Dugan, CMHC’s chief economist. “In April, multi-family SAAR starts declined or moderated in most CMAs that had seen strong growth in this segment the previous month, including Toronto and Vancouver. Single-detached SAAR starts held steady following a modest increase in March. Nonetheless, the overall trend-level of activity remains elevated as a result of strong activity so far this year.”

Source: Toronto Star
Source: CMHC

Worse and Worse Every Day’: Home Builders Roiled by Product Shortages, Volatile Prices

Home builders across Canada are getting hit by a string of supply-chain disruptions, resulting in widespread product shortages and explosive costs for the industry. In some cases, home construction is months behind schedule as developers struggle to source everything from lumber to PVC pipes, insulation to windows. Builders are also holding back on presales, unable to accurately price their homes too far in advance, given that material costs can fluctuate wildly on a daily basis.

Some have resorted to using “escalation clauses” in their contracts with buyers to account for potential price hikes. Ultimately, the situation is adding tens of thousands of extra dollars to the typical new home – a cost that is hitting buyers’ wallets at a time of voracious demand in the market and affordability concerns.

“The whole supply chain is out of whack,” said Matt McCurrach, president of Homex Development Corp. in Kamloops, B.C. “It’s getting worse and worse every day,” added Sue Wastell, president of Wastell Homes in London, Ont. “Literally every day, we’re finding out something else is not arriving when it was scheduled to. … We’ve never seen anything like this.”

After a brief slowdown when COVID-19 hit, residential construction is booming in Canada and the United States. Many homeowners have put their pandemic savings toward renovations. With so much demand for anything home-related, manufacturers have struggled to keep up.

Lumber is a prime example. Production tumbled last year as COVID-19 escalated. Prior to that, a number of B.C. sawmills were shuttered, owing to anemic prices and lower log supplies. Now, the industry is playing catch up, with lumber prices surging more than 300% from a year ago. On lumber alone, the cost of building a 2,600-square-foot home has risen by about $40,000, Ms. Wastell said. Under normal circumstances, she would release upwards of 50 homes for presale at a time. That’s ebbed to between four and six, given the lack of clarity on what her construction costs will be.

Curtis Mercer, the head of K & P Contracting Ltd. in St. John’s, said costs are up roughly $20,000 for a 1,200-square-foot home. Because of price changes, he’s amending his contracts three or four times before they reach buyers.

It goes well beyond lumber. For Mr. Mercer, the biggest source of delays is plumbing fixtures. For Ms. Wastell, there were no electrical panels recently in London. And for Mr. McCurrach of Kamloops, it’s especially tough to find engineered materials, such as floor joists and roof trusses.

“Quotes are only good for seven days, and you can’t even lock in pricing at this moment,” said Mr. McCurrach, who’s currently building a 31-unit condominium. “Until we can lock in every number, we won’t start selling.”

For consumers, the impact is clear. The price of a new home shot up 7.9% in March, the largest 12-month gain since 2007, according to Statistics Canada data of contractors’ selling prices. Prices rose in all 27 metropolitan areas that were surveyed, paced by Ottawa, up 17.3%.

Even so, buyers are undaunted. Statscan cited lower mortgage rates, remote work from home and the desire for more space as factors spurring demand. And with fewer presales up for grabs, that’s creating more competition, the agency said.

Ms. Wastell said between 70% and 80% of her buyers are coming from the Greater Toronto Area, a trend that predates the pandemic. “People are buying things without ever going through a model home,” she said. “There’s a ton of pent-up demand.”

Still, there is trepidation over how much the consumer can bear and the extent to which developers are willing to absorb some of the costs. Kevin Lee, CEO of the Canadian Home Builders’ Association, said some developers are building less than they otherwise would, on account of supply and cost pressures.

Source: Globe and Mail

Canadian Home Prices Could Climb 14% in Pandemic’s Second Year as Low Rates Stoke Demand, CMHC Says

Canada’s home sales and price growth will moderate over the coming years from the unsustainable levels of 2020, but remain elevated, with housing starts expected to stabilize by the end of 2023, Canada Mortgage and Housing Corporation (CMHC) forecast in its spring market outlook. 

The outlook shows a steady rise in home values in the best- and worst-case scenarios. At the low end of its forecast, CMHC sees the average price up 11% to $628,400 this year and then increasing by 3.7% in 2022 and 2.7%, the following year. At the upper end, CMHC predicts home price acceleration slowing from 14% this year, to 5% in 2022 and then 4% in 2023.

“Economic conditions are expected to return to pre-pandemic levels by the end of 2023 … This includes the pace of home sales and prices, which we expect to see moderate from 2020 highs over the same period,” Bob Dugan, chief economist at the CMHC, said in a statement. Dugan warned that significant risks that could impact the forecast include the path of the COVID-19 pandemic, a faster-than-expected increase in mortgage rates, and a reversal of the urban exodus that has driven up prices outside large cities.

How employers address remote work could also upend the outlook, Dugan added. “This is a big question and one that is very difficult to answer, quite frankly,” said Dugan. “Will employers want their staff back in the office after the pandemic is over or will remote working arrangements continue to some degrees?” If remote work arrangements continue, he said price differentials between major metropolitan centres and rural counterparts could erode or even reverse.

The CMHC said in May 2020 that it expected housing starts, sales and prices to plunge amid the pandemic, with prices not expected to recover to pre-pandemic levels until 2022. But home sales and prices soared to record levels, with the average selling price up 31.6% in March 2021 from a year ago. Housing starts also hit a record high in March.

Rental demand is also expected to recover through 2023 as immigration and inter-provincial migration resume, and as students return to campus, the agency said.

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

Bidding Wars Calm Down as Sellers Come Back to Canada’s Housing Market

Zoocasa CEO Lauren Haw spoke with Financial Post’s Larysa Harapyn about the continued strength of the real estate market in Canada. Here are some highlights from their discussion:

February and March were pretty typical in terms of lots of bidding wars. What happens every year, at the beginning of the year all the buyers are ready. They sit down at the beginning of the year and say “ok we are ready to buy a house, we are doing it this spring market.” So January 1st they start clicking refresh and they are looking for listings. But all the sellers say “we are going to wait until the spring market so my gardens look good, the snow stops, and we will list then.” So what we find is that every year that between Family Day and March Break, we get wild bidding wars. Now this year they were a little wilder than normal, prices across the country were up 30%-50% in some markets year-over-year. And we’re seeing now what’s typical in the spring, is more inventory coming to market and bidding wars are calming down a bit. In April we saw drastic numbers because last April the market was effected by the beginning so the year-over-year numbers for April will look completely out of whack. However, we are finding a very normal spring market.

Bidding wars – we’ve heard buyers complain to regulators with respect to realtors code of ethics and bidding wars and blind bidding, can you take us through that?

The blind bidding is something that in Toronto and Vancouver markets have been used to for a decade or more. It’s effectively where a property is brought to market and we say in a week we will look at offers, so whoever wants to come to the table as a buyer and make an offer and its a blind auction. The agents that are representing the buyers will help them put together an offer, we know how many other bidders there are, but you don’t know the mechanics, however agents are legally not able to disclose the numbers that are in the offer, or any of the terms that are in the offer. I think when you are referring to code of ethics, some buyers do not like when a property is listed for less than market value, they feel its misleading. The difficulty is, in this market where were for the last couple months seeing week over week appreciation, sometimes its in the best interest in the seller to set a price that encourages as much foot traffic through the house and then let the buyers set the price that it is worth.

We know the demand for detached houses has been on the rise, tell us about the resurgence in demand for condos.

The pandemic hit the condo market hard and investors took a pause, the low of offers and sales hit the condo market in November and December 2020. Right at the turn of the new year we started the first indicators when showings started picking up and prices started rising, and now we are in a market where there are bidding wars back in the condo market. We’ve seen a return of renters to the downtown spaces, and we’ve seen a return of end users. 

1 in 5 homeowners in Toronto and Vancouver own at least one other property, take us through that trend. 

Interestingly, it’s a fairly large portion who own within the same city. That presumably is for rental purposes, or someone else in the family to live in. It’s very similar to the trend we have seen in the last 10 years where the bank of Mom and Dad have come to the plate for first time home buyers. If you own a house in Toronto or Vancouver, in the last 10 years you have done very well on paper for the equity in that home. Because of that you also believe in the housing market as a good place to return, so a lot of people have taken money out of their primary residence and used that equity to buy a second one either as income or for helping their children enter the housing market. It is a bit of cycle we see the home price rise, leads to a further rise in home prices because its the same owner buying a second property. We also know that the push for recreational properties, a lot of that is driven buy equity rich urban dwellers. 

When it comes to Canada’s housing affordability versus around the world, what is your data telling you?

We are seeing that on a per unit basis. Toronto is catching up in terms of some of the most expensive real estate in the world, Vancouver has been in the Top 5 for a few years now. What is interesting, is when you take a look at a price per square foot basis, we are still very affordable compared to the likes of New York or London. Interestingly enough, if you’re in a city like Toronto over 60% of the housing types are still single-family dwellings, so it’s a unique city in that so many people can still live in low-rise dwellings in a relatively affordable place. 

Source: Financial Post

Canadians Are So Anxious About the Blistering Housing Market They’re Open to Rate Hikes to Cool It

Canadians are so alarmed by the red-hot housing market that many say they’d like to see the central bank raise the cost of borrowing to dampen demand for real estate and stabilize prices. About 70% of Canadians responding to a new Nanos Research poll conducted for Bloomberg News said the sharp increase in home prices was a major problem for the economy. Almost half were at least somewhat in favour of the Bank of Canada raising its overnight rate to slow the rise, even though such a move would also increase the cost of credit lines, credit cards and other debt.

The numbers underscore how soaring housing costs have emerged as a major issue in the public consciousness after a year in which prices jumped by 30% or more in some regions. Economists at major banks have called on the government to act to reduce demand. At the same time, the Bank of Canada has made it clear it won’t raise rates until the economy absorbs its excess capacity — a milestone projected for 2022 at the earliest.

The Bank of Canada’s long-standing position has been that it should be the last line of defence against threats to financial stability, as its focus is on other priorities, like maintaining healthy inflation and output growth. Most economists say it’s still too early in the recovery for the central bank to hike rates, and it’s not clear that the survey respondents who favoured raising rates took full account of the broader effect of higher borrowing costs.

Still, Canadians’ growing alarm at the recent surge in home values could present a political problem for Prime Minister Justin Trudeau. The government has options other than raising interest rates to slow the housing market, like taxes and regulation, but has refrained from using them for fear of angering homeowners.

Class battle

The widening gulf between Canadians with property and those without has some vocal critics casting the issue as a battle among classes or generations. And like so many modern revolutionaries, Canada’s housing discontents are congregating on Reddit. “We’ll be the generation that can never retire because of housing prices. The barrier to entry has never been higher,” said Greg Murray, a 33-year-old corporate strategy executive who was a spokesman for the Reddit group. “Our government is not even admitting it’s an issue, they’re not even acknowledging it at this point, and that’s what we’re fighting to raise awareness of.”

In Canada as in the U.S., home ownership has long been seen as essential to securing a place in the middle class, prompting Canadians to own their homes at one of the highest rates in the world. The home ownership rate in Canada is roughly 69%, compared with 65% in France, 63% in the U.K. and 61% in Japan.

The Trudeau government has said it’s particularly focused on helping first-time homeowners get into the market, but so far most economists think the steps taken — including a 1% tax on non-resident homeowners and funding for affordable housing — are unlikely to make up for the ground lost by prospective homebuyers in the last year. As a model for alternative policy, the Trudeau government’s critics point to New Zealand, which, faced with a similar housing boom over the past year that was induced by low interest rates, introduced a tax specifically targeting speculation. The government also instructed its central bank to consider housing when setting monetary policy.

Canada’s housing agitators often portray the issue as a conflict between the old and the young, and the propertied and the property-less. But the Bloomberg survey, conducted from April 29 to May 3, suggests that may not be the case. Even though 18% of respondents 18 to 34 said they “support” increasing interest rates to slow the rise of housing prices, compared with 13% of respondents over age 55, the older group was even more likely than the younger group to say they “somewhat support” an increase.

“I think it’s pretty clear to most people that housing in this country is all but out of control,” Benjamin Reitzes, a Canadian rates and macro strategist at BMO Capital Markets, said by email. “While it’s nice to have an appreciating asset, it makes moving to the next home that much more expensive. In addition, for those with kids, it makes you wonder how they’ll be able to afford a home if this continues.”

Source: Financial Post