CMHC Announces Upward Trend in November Housings Starts
The national trend in housing starts in November increased. The trend was 231,491 units in November 2020, up from 222,989 units in October 2020. Multi-family SAAR starts partly rebounded in November from two consecutive declines, offsetting a decline in single-detached SAAR starts and driving the overall trend higher. Multi-family starts were particularly strong in Vancouver and Montréal in November.
November Standalone Seasonally Adjusted Annual Rate (SAAR)
- The standalone monthly SAAR of housing starts for all areas in Canada was 246,033 units in November, an increase of 14.4% from 215,134 units in October.
- The SAAR of urban starts increased by 15% in November to 233,106 units.
CREA Announces Canadian Home Sales Remain Historically Strong in November
Statistics released on December 15 by the Canadian Real Estate Association (CREA) show national home sales continued running at historically strong levels in November 2020.
- National home sales edged back 1.6% on a month-over-month (m-o-m) basis in November.
- Actual (not seasonally adjusted) activity was up 32.1% year-over-year (y-o-y).
- The number of newly listed properties also fell back by 1.6% from October to November.
- The MLS® Home Price Index (HPI) rose 1.2% m-o-m and was up 11.6% y-o-y.
- The actual (not seasonally adjusted) national average sale price posted a 13.8% y-o-y gain in November.
- There were 2.4 months of inventory on a national basis at the end of November 2020 – the lowest reading on record for this measure.
“If I had to sum up the Canadian housing story in 2020, I would say it’s gone from weakness because of COVID to strength despite COVID,” said Shaun Cathcart, CREA’s Senior Economist. “It will be a photo finish, but it’s looking like 2020 will be a record year for home sales in Canada despite historically low supply. We’re almost in 2021, and market conditions nationally are the tightest they have ever been and sales activity continues to set records. Much like this virus, I don’t see it all turning into a pumpkin on New Year’s Eve, but at least vaccination is a light at the end of the tunnel. Immigration and population growth will ramp back up, mortgage rates are expected to continue to remain very low, and a place to call home is more important than ever. On top of that, the COVID-related shake-up to so much of daily life will likely continue to result in more people choosing to pull up stakes and move around. If anything, our forecast for another annual sales record in 2021 may be on the low side.”
Home Prices to Continue to Climb in 2021 as Unmet Demand Carries Over
Canadian real estate brokerage Royal LePage expects home prices to rise 5.5% in 2021, building on unexpectedly strong growth this year, driven by a shortage of properties for sale and record low interest rates. The forecast is at odds with others, including government-backed mortgage insurer Canadian Mortgage and Housing Corporation, which predicts price decline in 2021, and some of the country’s biggest banks, which foresee more muted growth.
“The upward pressure on home prices will continue,” supported by lack of supply to meet surging demand and policy makers promise to keep interest rates at record low, Royal LePage Chief Executive Phil Soper said.
The average Canadian home price rose more than 15% in October from a year earlier to an all-time high, according to the Canadian Real Estate Association.
Lenders Royal Bank of Canada and Bank of Nova Scotia said in their fiscal 2020 annual reports they expect house price growth of 0.6% and 0.4% over the next 12 months, citing economic uncertainties spurred by the coronavirus pandemic, weakness in condominium markets and constrained housing affordability.
Royal LePage expects the shift to larger homes, which has driven a surge in sales and prices of single-family houses this year, will moderate as “life returns to normal,” easing some of the pressure on condo markets. Condominium demand is expected to be healthy in most of Canada’s biggest cities, except Toronto, where softer demand is seen continuing in the city centre, the group said. Ottawa and Vancouver are expected to lead the country, with increases of 11.5% and 9% respectively, while Calgary and Edmonton are set to lag with growth of 0.75% and 1.5%. Toronto prices are expected to rise 5.75%.
Canada’s Hottest Housing Markets Are Slowing — and Condos Are Their Achilles Heel
The search for space continues in Canada’s two biggest housing markets. Home sales in Toronto and Vancouver stayed strong in November, up 24.3% and 22.7% respectively from the same month last year. But the pace of those gains is slowing, and condos are the Achilles heel.
In Toronto, 8,766 homes sold in November, down from 10,537 sold in October and the 11,051 homes sold at the peak of the pandemic housing surge in September. While the average price in November was up 13.3% to $955,615 from the year before, it was down from October’s record high of $968,162. Single-family homes continue to lead the charge, with detached sales up 30%, mostly in the 905 regions outside the city.
“Home buyers continued to take advantage of very low borrowing costs in November, especially those looking to buy some form of single-family home. Competition between buyers for ground-oriented homes has been extremely strong in many neighbourhoods throughout the GTA, which has continued to support double-digit annual rates of price growth,” said Lisa Patel, president of the Toronto Regional Real Estate Board.
The condo market continues to struggle, with listings in the city core almost doubling from this time last year. Condo sales rose 7.1% overall, but were up only 0.8% in the core. Prices declined 2% overall and 3% in the city.
Condos in the city of Toronto have been the only type of property to lose value in a period marked by booming sales and increasing values. A closer look at that number shows that prices for studios and one-bedrooms in the Toronto region are the ones that have taken the biggest hit from the first quarter to the third this year. Of the new condo project launches in the Toronto region this year, studios and one-bedrooms account for 61% of the new units, according to new data from Urbanation Inc. Two-bedrooms make up 32%, while three-bedrooms, penthouses and other larger spaces make up the balance.
However, Jason Mercer, TRREB chief market analyst, said this may be a short-term slump. “Once we move into the post-COVID period, we will start to see a resumption of population growth, both from immigration and a return of non-permanent residents. This will lead to an increase in demand for condominium apartments in the ownership and rental markets.”
Vancouver saw similar trends. Sales of detached homes rose 28.6% from the year before and prices climbed 9.4%. “With more time spent at home, current buyers are reassessing their housing situation in a move towards the suburbs for more space. Conversely Vancouver West condos, which includes downtown Vancouver, saw a whopping 2.5% decrease for the month,” said the Real Estate Board of Greater Vancouver. The Sunshine Coast saw the biggest sales boom, jumping 82.8% from last year.
“While demand remained elevated across the region, home buyer activity was particularly focused in more remote areas like the Sunshine Coast, Gulf Islands and Squamish,” said Colette Gerber, Vancouver board chair. “The rise of work-from-home arrangements and physical distancing policies is causing some home buyers to opt for less densified areas.”
Canadian Home Prices to Fall up to 5% in 2021, Fitch Predicts
Fitch Ratings expects Canadian home prices to decline by up to 5% in 2021, falling back from a surge this year. “We attribute the expected decline to lower demand caused by elevated levels of unemployment and increasing affordability issues,” ratings agency analyst Susan Hosterman said in a report on December 9, which noted that affordability measures supported by government programs and mortgage payment holidays during the global pandemic are unsustainable.
A six-month payment holiday, used by as many as 16% of mortgage holders, is coming to an end, meaning payments will have to be made in 2021. And with the unemployment rate expected to decline, yet remain above the average of 6.3% between 2015 and 2019, Fitch expects delinquencies to rise — between 0.35% and 0.5%. “Although we expect delinquencies to increase in 2021, we do not expect the level of delinquencies, distressed sales or foreclosures to increase to the levels seen in the U.S. during the financial crisis,” the ratings agency said in the report.
Lenders closely monitor the financial situation of borrowers in Canada, and have historically been “proactive” by offering modifications and working with borrowers to make payments affordable, Fitch said.
Other pressures expected to drive house prices down in the coming year include declining rents and a significant drop in immigration, largely due to the pandemic. A mortgage affordability stress test is expected to put further pressure on home prices.
The ratings agency expects a quick recovery in the housing market in 2022, provided economic activity returns to pre-pandemic levels.
Canada’s residential real estate prices have been on a tear this year after pent-up demand in the early months of the pandemic led to a surge. Sales were driven, in part, by a large number of people working from home and generally spending more time there as everything from travel to restaurant dining remained restricted to control the spread of COVID-19. Average home prices in October were down slightly from September, but still up 15.1% from a year earlier.
Rishi Sondhi, an economist at Toronto-Dominion Bank, said in a Nov. 16 report that the trends were likely to continue for the balance of the year, but warned that affordability pressures were mounting in expensive markets such as Toronto, which would make sustaining the growth difficult in the longer term. “Notwithstanding the dip in October, tight markets and the shift in buying towards larger, more expensive properties should keep price growth positive in the fourth quarter overall,” Sondhi wrote.
Fitch is projecting an increase of 7% for all of 2020, but suggests the forces weighing on home prices will lead to a decline of 3% – 5% next year.
Source: Financial Post