Building Permits, April 2021

The total value of building permits remained at historically high levels in April 2021, edging down 0.5% to $11.1 billion, following the record set in March. The slight pullback was mainly due to declines in the residential sector in British Columbia and Quebec, which outweighed national gains in the non-residential sector. On a constant dollar basis (2012=100), building permits were largely unchanged (-0.0%).

Residential sector remains strong despite decrease in April

In the residential sector, the value of building permits fell 6.7% to $7.7 billion in April. Despite the decrease, this was the second highest value on record. British Columbia (-23.7%) and Quebec (-14.9%) accounted for most of this decline.

The value of building permits for multi-family dwellings dropped 6.5% to $4.1 billion. Gains in Ontario and Alberta were not enough to offset decreases in British Columbia and Quebec, where several large permits had been issued (in both provinces) during the previous month.

Eight provinces reported a decline in the value of permits issued for single-family dwellings, with the national total down 7.0% to $3.6 billion, mainly as a result of fewer new projects in Ontario and Quebec.

Commercial and institutional components boost the non-residential sector

Commercial permits surged 28.7% to $1.9 billion in April. A $97 million permit for the Sick Kids patient support centre in the city of Toronto and an $80 million permit for the Centennial Community and Aquatics Centre in the city of New Westminster were among several large permits that were issued in the month. In contrast, the largest commercial permit issued nationwide in March was valued at $43 million and was for a warehouse in the city of Pickering.

The value of institutional permits increased 23.1% to $910 million, led by Quebec (+135.7%), which rebounded from a 53.6% drop the previous month. Quebec issued numerous large permits in April, such as for a new hospital in the city of Saint-Jean-Sur-Richelieu ($56 million) and for a new seniors’ care centre in the city of Belœil ($43 million).

The value of industrial permits fell 13.2% in April to $592 million. Ontario (-36.5%) accounted for most of the decrease, as fewer permits for large projects were issued in the province compared with the previous month. Overall, the value of building permits in the non-residential sector climbed 17.4% to $3.4 billion.

Source: Statistics Canada

RBC CEO Wants Policy-Makers to Tackle Lack of Housing Supply Pushing Up Prices

Royal Bank of Canada’s chief executive says he supports the federal government’s efforts to cool the country’s real estate market, but feels it’s time to address the lack of housing. “We support recent actions taken by regulators to adjust mortgage stress tests to take some pressure off the demand side of the equation, but we encourage policy-makers to also address the problems of limited supply, which are exacerbating house price inflation,” Dave McKay told analysts.

The new mortgage stress rules he was referring to come into effect on June 1. They will set the qualifying rate on uninsured mortgages at either two percentage points above the contract rate, or 5.25%, whichever is greater.

Prior to the government unveiling its plan, McKay called for the qualifying rate used for mortgages to be increased because he felt it would put pressure on people overreaching to handle a larger home with a low interest rate and take some buyers that require a large down payment out of the marketplace. While McKay was calling for such measures, RBC’s Canadian banking segment added more than $55 billion in mortgages and its number of clients in the country with more than a transaction account rose to 65%. Many had a mortgage, credit card or mutual fund with the bank and such relationships helped boost the bank’s retention rates and mortgage profitability, he said.

In recent months, the bank has also directed much of its attention towards putting aside massive amounts of money to prepare for customers potentially defaulting on loans. RBC reversed $96 million of its provisions for credit losses in its latest quarter compared with the $2.83 billion it set aside in the same quarter last year at the start of the pandemic.

While the bank has eased up on how much it added to those reserves in the last two quarters, chief risk officer Graeme Hepworth said he expects delinquencies and impairments to increase in the fourth quarter and into the first half of 2022 as government relief programs wind down. “However, we don’t expect them to be as acute as we initially expected at the onset of the pandemic,” he said.

McKay and Hepworth’s comments came as RBC topped expectations and reported its second-quarter profit more than doubled compared with a year ago. The bank earned nearly $4.02 billion or $2.76 per diluted share for the quarter ended April 30, up from a profit of $1.48 billion or $1.00 per diluted share a year earlier.

Revenue totalled $11.62 billion, up from $10.33 billion in the same quarter last year. RBC said its adjusted earnings per diluted share for the quarter amounted to $2.79, up from $1.03 a year ago. Analysts on average had expected an adjusted profit of $2.48 per share, according to financial data firm Refinitiv.

Source: The Northern View

Why Canada’s Housing Construction Spree Could Soon Loose Momentum

Canadian housing starts remain at elevated level, but they are still trailing surging demand. Housing starts stood at 279,055 units in April, compared to 272,164 units in March, according to the Canada Mortgage and Housing Corporation. The standalone monthly seasonally adjusted annual rates (SAAR) of housing starts, however, was 268,631 units in April, a decrease of 19.8% from 334,759 units 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. “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.”

But Sal Guatieri, senior economist at BMO Capital Markets, says it will be hard to keep the momentum going. While Canadian average housing starts have hovered around 279,000 over the past six months — their highest level since the 1990s — builders are “struggling with supply disruptions, skilled-worker shortages, and soaring lumber costs that have added tens of thousands of dollars to the cost of a new home.”

Another reason for the rising demand in family dwellings? The share of detached homes has been trending down since as far back as 2005, coinciding with Ontario’s move to restrict land use in parts of the Greater Golden Horseshoe region — that’s exactly the place many residents and immigrants want to move to.

“These are the homes now highly sought by older millennials raising families and, more recently, by teleworkers,” Guatieri said. “Consequently, the supply of new detached homes remains lean, leaving prices sensitive to demand swings.” The Canadian Real Estate Association estimates nationally, there were two months of inventory at the end of April 2021, well below the long-term average for this measure of a little more than five months.

The housing sector is also paying the price of low construction levels from 1992 to 2001, when average housing starts stood at just 146,000. In addition, Canada’s population has jumped 1.3% on average from 2016 to 2020, thanks to immigration, while construction failed to match the surge in new households.

It’s not that the country is not spending on residential investment. The sector accounts for 9.3 share of the GDP, compared to its historical average of 5.9%, however, much of the increase is in renovation and ownership transfer.

With Canada expected to increase immigration levels, and millennials and remote workers looking for new homes, the country will need to build more single-family homes. “A more responsive, nimble approval process would help builders respond faster to recurring spikes in demand, limiting periods of overheating in major urban areas,” Guatieri wrote. “This would also reduce the need for policymakers to spring into action to douse demand every time prices flare up. Better to prevent the fire than to put it out.”

Source: Financial Post

Staying Cool in a Hot Housing Market

When James Hsiung and his wife decided to sell their Aurora, Ont., home last winter, the Greater Toronto real estate market was hot. By the time they made their move to Niagara Falls earlier this year it was on fire. 

Even in Niagara Falls, they found themselves in a fast-paced real estate market. They lost out on two properties before finding the home for them.

“You lose out on bidding wars and it’s so easy to fall into that emotional trap and say, ‘What the heck, what’s another $100,000’ because it’s tough to find a property you like,” says Mr. Hsiung, 46, director of business development, Asia-Pacific, at Telus Partner Solutions. His advice? “Don’t get emotionally attached. Be objective about it because that bidding process is cruel.”

Despite the uncertainty spurred by the COVID-19 pandemic, the real estate market across the country is booming. According to the Canadian Real Estate Association, national home sales set a record in March, with activity up 76.2% year-over-year. Sales decreased slightly in April but remain strong.

For Mr. Hsiung, selling in the Greater Toronto Area and buying outside the city made sense. Both he and his wife, who is an artist, are able to work from home. They ensured they had a place to live so they wouldn’t be rushed into a decision and most importantly, they did the math and set a budget.

Toronto and Vancouver are the hottest real estate markets in the country. Home sales were down slightly in April from March, but both cities set records; Toronto at 36.6% higher than the 10-year average for the month, and Metro Vancouver at 56.2% above the 10-year average. It’s not a buyers’ market, yet buyers there are.

Taylor Biggar, chairperson of the Real Estate Board of Greater Vancouver, says house hunters need to be patient. For buyers, he recommends assembling a team you’re comfortable with – a mortgage broker, realtor, accountant, lawyer, notary – all the expertise you might need.

There are reports that sales are going ahead without a home inspection or other conditions as bidding wars heat up. Mr. Biggar says consider pre-inspections, which many sellers will allow, or at least ask for what is called a sellers’ inspection. “The buyers all have access to one inspection done by a professional, so they can all take a look at the same document,” he says. “Whether or not they trust that is a different thing.”

The real estate market is cooling slightly, he says. Already, patience is paying off for buyers who waited out the frenzy in March.

In Vancouver and Toronto, however, there are also only so many homes, says William Strange, professor of economic analysis and policy at Rotman School of Management at the University of Toronto. “We don’t build enough housing, which is kind of surprising from the perspective of both Toronto and Vancouver, where we’re building a whole lot of housing but a whole lot [still] ends up not being enough,” he says.

His advice to potential home buyers is, well, maybe don’t. “The first thing I say to people is maybe renting would make more sense for you,” Mr. Strange says. His second piece of advice is to consider somewhere else more affordable outside of Metro Vancouver or the GTA.

That said, real estate markets are unpredictable, but it’s unlikely that housing prices will drop drastically in either city, he adds. “Unaffordable cities are likely to be unaffordable forever. I don’t think somebody who buys a house in Toronto today is probably going to get crushed on it,” he says.

He suggests potential buyers do their own financial stress test. “The banks require stress tests on income and payments, but you might want to be even more cautious than the banks,” he says.

“A lot of people have the idea that you must buy a house; that if you don’t you are somehow a financial failure. You should just approach it like any other financial calculation. In which situation am I going to be better off in the end, buying versus renting at a comparable price?”

Source: Globe and Mail

Condo Sales Reach 10-Year High in April

It was a record April for pre-construction and new condo sales in the Toronto region as more projects launched and consumers considered their alternatives in the context of rapidly escalating home prices. The 3,619 condos that sold in April represent a 10-year high for April, up 69% over the average, according to the Building Industry and Land Development Association (BILD).

Although condo sales were up 612% year-over-year, the industry association warned that April 2020 was the first full month of the pandemic lockdown and isn’t a valid comparison. “There’s a lot of new inventory coming onto the market and therefore the supply increased and that facilitated the demand. Secondly, the price points were attractive for first-time buyers,” said BILD CEO David Wilkes.

Despite a lull in the condo market last year in both new construction and resale segments, April’s sales show there is reason for confidence in the sector “given the long-term growth we project for the region,” Wilkes said. He predicted that “housing sales of all types will continue to be strong.”

The benchmark price for new condos was $1.06 million, up 7.5% from last April’s benchmark of $984,369. The price of newly built single-family homes, a category that includes detached, semi-detached and townhouses, was nearly $1.4 million, up from $1.2 million last year — a 25% annual increase.

April’s 1,020 new single-family home sales were 26% below the 10-year average. “The rapid price increase for new single-family homes since last summer is also a factor, as price-sensitive buyers shift their expectations to product they can afford,” said Ryan Wyse, of Altus Group, which tracks the homebuilding industry.

Changes to the mortgage stress test announced by the Office of the Superintendent of Financial Institutions on May 20, “will have some impact,” on consumer buying power, said Wilkes. “It may affect demand but it won’t address the root cause of the (affordability) problem, where we need more housing for the 4.4 million residents of the GTA by 2051,” he said. “This is a supply-side problem and we need supply-side solutions.”

Inventories have improved slightly but remain below what’s needed for a balanced market, which amounts to about eight months of inventory, said Wilkes. “We’re nudging up to around three months,” he said.

Source: Toronto Star

Bank of Canada Flags Debt Risks as Some Canadians Overpay to Get Into Hot Housing Market

Canadians looking to buy homes will face stiffer mortgage tests as the federal government and a national regulator tighten rules in the wake of new warnings from the central bank that households are piling on too much debt. In its latest financial system review, the Bank of Canada said many households have taken on large mortgages compared with their income, limiting their flexibility to deal with an unforeseen financial shock like the loss of a job.

Total household debt has increased by 4% since the start of the pandemic, picking up sharply since the middle of last year as the housing market started to heat up. The percentage of costly loans, defined by the bank as those more than 4.5-times a household’s income, have also risen above the peaks seen five years ago when policy-makers tightened mortgage rules.

The Office of the Superintendent of Financial Institutions said that effective June 1, the qualifying rate on uninsured mortgages would be set at either two percentage points above the contract rate, or 5.25%, whichever is greater. Hours later, the federal government, which had been pressed to follow suit, announced it would set the same standard for insured mortgages on the same day, effectively trying to prepare buyers for when interest rates rise from their current lows.

“The recent and rapid rise in housing prices is squeezing middle-class Canadians across the entire country and raises concerns about the stability of the overall market,“ Finance Minister Chrystia Freeland said in a statement accompanying the announcement. “Maintaining the health and stability of Canada’s housing market is essential to protecting middle-class families and to Canada’s broader economic recovery.”

In its report, the Bank of Canada said the current housing boom may help the economy rebound in the short-term, but could lead to a future bust if households have to cut spending because of another downturn. And by biting off more than they can chew with a new mortgage, governor Tiff Macklem warned it may make those households more vulnerable to rising interest rates when it comes time to renew their loans, adding it was up to Canadians and lenders to be prudent.

“The current rapid increases we’ve seen in prices — don’t expect that those will continue indefinitely,” Macklem told a news conference. “Don’t expect that you can pull equity out and refinance your mortgage in the future on the basis that prices are going to continue to go up like we’ve seen.”

House prices were up 23% nationally relative to a year earlier, the bank said in its report. The Canadian Real Estate Association said that the average price of a home sold in Canada in April was just under $696,000.

The bank said the surge in prices is more widespread in cities than five years ago, when things were largely concentrated in and around Toronto and Vancouver. In the bank’s view, the Greater Toronto Area, Hamilton and Montreal are overheated and Ottawa is on the precipice of joining them. With house prices rising, and supply of available homes lagging demand, some homeowners may be tempted to buy now out of concern that they won’t be able to afford something in the future.

The Bank of Canada’s hands appear to be tied on its ability to raise its trend-setting policy rate that could pour cold water on anyone wanting to buy right now. Macklem said swaths of the economy still need central bank support and the labour market needs to add some 700,000 jobs to get the employment rate to where it needs to be before rates could rise.

The review of the risks to the financial system also highlighted concerns about a too-soon withdrawal of government aid for businesses. Companies are concerned about their future viability when government support ends because much remains uncertain about what post-pandemic life and economic activity will look like, the central bank said.

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