Canadian Home Prices Expected to Keep Rising This Year, Outpacing Inflation

Canadian house prices will continue their upwards march this year, outpacing inflation after hitting record highs in 2020, according to a Reuters poll of property market analysts who said the risk of a COVID-19 resurgence derailing activity was low. Renewed lockdown restrictions after a second wave of infections hit the country are threatening expectations for a strong recovery after the economy likely posted its biggest GDP drop on record of 5.1% in 2020.

Yet the Canadian housing market showed resilience, helped by record low mortgage rates and massive fiscal spending. The Jan. 12-29 poll of 15 property market analysts showed house prices would rise 5% on average this year nationally. That was the highest prediction since Reuters began polling for 2021 in February 2019.

Prices were expected to jump 4% further next year compared to 3% forecast in September. Both 2021 and 2022 predictions are significantly higher than inflation expectations.

“Historically low interest rates, changing housing needs, high household savings and improving consumer confidence will keep demand (for homes) supercharged,” said Robert Hogue, senior economist at RBC. “The main restraining factors will be a lack of supply, waning pandemic-induced market churn, a modest creep-up in interest rates and an erosion of affordability. Call it a 2022 soft landing.”

The Bank of Canada was predicted to keep its key interest rate unchanged at near-zero levels until at least 2024, according to a separate Reuters poll.

House prices in Toronto and Vancouver were expected to rise 5.3% and 4.1% this year respectively, up from 2% predicted for both in September.  Apart from easy monetary policy, a desire for more living space and a successful vaccine rollout were identified as the potential drivers of Canadian housing market activity this year, the poll showed.

While prices are set to rise again this year, nine of 14 economists who answered an additional question on whether activity would be faster or slower than in 2020 said it was likely to be slower over the coming year. But most economists who responded to another question said the risk of a resurgence in COVID-19 cases derailing the housing market this year was low.

“Fading income support, expiring mortgage deferrals and rising interest rates would strongly suggest that the housing market will downshift over the course of 2021,” said Brendan LaCerda, senior economist at Moody’s Analytics. “Housing is at risk, but not from COVID-19.”

Affordability remains a concern. When asked to assess house prices on a scale of 1 to 10, where 1 is cheap and 10 is expensive, respondents rated national, Toronto and Vancouver at 7, 8 and 9, respectively. “Lower interest rates have improved affordability despite the increase in prices. However, that only implies homes are ‘cheap’ conditional on rates. Rising rates in 2021 will strain affordability,” said LaCerda.

Source: Financial Post

For the first time ever, there were more pre-construction condos sold in the 905 area than Toronto last year

Smaller apartments with big appeal for investors helped the 905 areas outside the city dominate the Toronto region’s 2020 condo market in a trend that is expected to continue in 2021, said Shaun Hildebrand, president of market research firm Urbanation. Last year was the first time that 905-area condos eclipsed pre-construction sales in the City of Toronto with a 51% share of the 18,247 units sold. But the overall number of new launch sales was 28% below 2019 sales, according to a year-end report released on February 1.

60% of the condos launched in 2020 were one-bedroom and studio apartments, compared to 53% in 2019. In the City of Toronto, developers were selling bigger condos — 706 sq. ft. on average compared to 676 sq. ft. in 2019. But in the 905 markets, condos shrank down to 688 sq. ft. compared to 715sq . ft. in 2019.

That’s partly an indication of the GTA’s affordability challenges, said Hildebrand. “I’m sure developers would love to sell larger units but the market for larger units is smaller because of higher price points,” he said.

Investor-focused projects tend to be smaller, he said. Eleven of the top 20 selling launches last year were in the 905 with one near the Vaughan Metropolitan Centre subway selling units less than 600 sq. ft. on average. “With interest rates at rock bottom lows and stock markets looking pretty frothy, I think people are looking for a place to invest and the 905 condo market has been a safe place,” said Hildebrand.

He cited less dramatic rent declines in the suburbs and increased resale prices. Investing in a new condo in Toronto was more challenging with resale units selling for 10% less than they did pre-pandemic and rents declining 17%.

The 905 has traditionally been an end-user market and the popularity of condos there reflects the outflow of population to secondary GTA markets, said Hildebrand. Vaughan, Oakville, Mississauga and Thornhill all saw substantial sales from both investors and buyers who plan to occupy their units. Those submarkets offer “a significant discount relative to downtown Toronto,” he said. Transit such as the Vaughan subway and the coming Hurontario LRT are adding to the appeal.

There is less condo activity in the outer areas of the 416 area code, such as North York, Etobicoke and Scarborough. “Prices are expensive relative to rents and resale prices. The price difference between a new condo and a resale condo is over $400 per sq. ft. That’s increased since the pandemic by $130 per sq. ft. because new condo prices have remained at historic highs whereas we saw some decline in the resale market,” he said.

Rents will become an increasing challenge for downtown condo investors. Buying at today’s prices, an investor needs about $3,500 in rent to cover their carrying cost. The average rent downtown is about $2,100. That is a 67% difference investors need to achieve in the next four or five years when those units are built to recover their carrying costs. “It just becomes tougher to make the numbers work downtown than in the 905, which is why a lot of investor demand has shifted to the suburbs,” said Hildebrand.

Source: Toronto Star

Montreal, Quebec City home sales hit record highs in January: QPAREB

People in Montreal and Quebec City rushed to buy a record number of homes at the start of the year, but had fewer options to choose from. On February 2, the Quebec Professional Association of Real Estate Brokers said that Montreal sales climbed to 3,971 in January, up 17% from 3,398 in 2020. Quebec City’s sales during the same month reached 829, a 16% jump from 713 in 2020.

The record highs show that house hunters weren’t deterred from snatching up properties even as the province contended with strict lockdowns and curfews meant to keep Quebecers home and curb COVID-19. Those that ventured out found a competitive market, but a lack of options. “It was a feeding frenzy, but there was no food, no inventory,” said Catherine Dawe, a Montreal broker with Keller Williams Realty. She noticed housing demand was high in most of the regions’ trendiest neighbourhoods, including the Plateau, throughout January and she was urging buyers to stay calm and not get overwhelmed by the heated conditions.

Charles Brant, director of market analysis at the QPAREB, noticed the frenzy too. “Condominiums and plexes registered record sales, including on the Island of Montreal, with the highest number of transactions ever recorded since the early 2000s,” he said in a statement.

But there were also signs of the market of easing up. January was the first month since June 2020 that the increase in sales was well below the 40% mark in Quebec City, he pointed out.

That easing is likely due to active listings falling by nearly two-thirds in the past 12 months in the single-family home category and the Quebec City market seeing a strong increase in sales last January. The QPAREB said the number of active listings this January dropped by 48% to 3,848 in Quebec City and 25% to 11,176 in Montreal. The number of new listings was down by 30% to 1,003 in Quebec City and 11% to 5,042 in Montreal.

Meanwhile, the price of a single family home edged up by 11% to reach $282,000 in Quebec City, while condos slipped in price by 2% to an average of $200,000. In Montreal, the average single family home price crept up by 23% to hit $434,000 while condos moved up 23% to $434,000.

“What is shocking is that the prices are still going up and up and up,” said Dawe. “We re-establish our prices based on what we think the new normal is and then people are still getting beyond that.”

According to Dawe, “[t]he only place where there’s not as much crazy demand is in a condo in the heart of downtown.”

QPAREB’s new numbers come a month after the regions proved so resilient that they reported the best December on record for home sales across every Montreal neighbourhood. The association said that agents sold 4,613 Montreal homes in December, up 32% from 3,503 during December 2019.

Source: Toronto Star

High demand and higher prices for Vancouver real estate in January.

Homes sales in much of Metro Vancouver in January increased by 52.1% compared with sales from the same time in 2020. Colette Gerber, chair of the Real Estate Board of Greater Vancouver, says home sales activity in January outpaced supply, putting upward pressure on prices.

The board reports 2,389 home sales in the region for January, which was a 22.8% decrease from the red-hot housing market in December.

The composite benchmark price for all homes in Metro Vancouver is $1,056,600, a 5% increase over January 2020 and a 0.9% boost from December. The board says sales of apartments had a similar increase year-to-year at 46.8%, with a benchmark price of over $680,000.

Gerber says shifting housing needs during the pandemic and historically low interest rates have been key reasons for sales over the last six months. “People who managed to enter the market a few years ago, and have seen their home values increase, are now looking to move up in the market to accommodate their changing needs.”

Source: Toronto Star

Building Permits – December 2020 and an Annual Review of 2020

The total value of building permits decreased 4.1% to $9.1 billion in December, following a month during which several high value permits were issued. Declines were reported in every component except single-family dwellings. 

All components decline in the non-residential sector

All three non-residential components—commercial (-9.0%), industrial (-24.4%) and institutional (-6.1%) buildings—reported declines as the overall sector fell 10.8% to $2.7 billion in December.

Four provinces recorded a decrease in the value of non-residential permits. Ontario (-30.5%) posted the largest decline, following a significant increase in the province in the previous month. Excluding Ontario, the value of non-residential permits rose 8.6% in the rest of the country. Newfoundland and Labrador reported its highest value on record ($175 million), which was almost entirely due to a $171 million permit for renovations to a hospital in the city of Corner Brook.

Record high for single-family homes

Single-family homes rose 7.0% to $3.1 billion, surpassing the previous record of $2.9 billion set in October 2016. Six provinces posted gains in this component, led by Ontario (+6.8%) and Quebec (+11.1%). The rise in Ontario was mainly due to the census metropolitan area (CMA) of Toronto (+51.9%), while the gains in Quebec were largely due to municipalities outside of CMAs.

The national value for multi-family dwellings declined 7.2% to $3.3 billion, largely because of a 12.8% drop in Ontario. Four other provinces also reporting a decrease in this component.

Overall, the residential sector edged down 0.9% to $6.4 billion after posting a record setting month in November.

Record quarter due to strength in the residential sector

Quarterly gains observed in the residential sector were enough to offset a decrease in the non-residential sector. As a result, the total value of building permits in the fourth quarter of 2020 reached $27.0 billion, up 5.4% compared with the third quarter, surpassing the previous record high, which was set in the second quarter of 2019.

Single- and multi-family dwellings both posted record highs in the fourth quarter of 2020. This marked the second straight quarter of record-setting numbers for multi-family dwellings, while single-family homes surpassed the previous high set in the fourth quarter of 2016.

Gains in the value of permits issued for institutional buildings (+20.9%) fell short of offsetting reduced activity in the commercial (-10.4%) and industrial (-10.2%) components of the non-residential sector, as the sector as a whole declined 2.8% to $8.3 billion in the fourth quarter.

Annual review of 2020: A year of turbulence

The total value of building permits declined 2.3% in 2020, despite a rebound in the second half of the year. This was the largest annual decrease since the recession in 2009.

The residential and non-residential sectors reversed directions in 2020 as the residential sector posted a record high $66.7 billion, up 7.3%, despite the low values reported in the early spring. In the residential sector, gains in Ontario and Quebec were more than enough to offset the declines in British Columbia. New construction led most of the growth (+9.1%), while permitted renovations dropped 5.0%, largely as a result of fewer projects for multi-family dwellings.

41.6% of Canadians reported working half or more of their usual work hours from home during the early stages of the pandemic, according to the Labour Force Survey. This share had declined to 28.6% by December 2020, but was still more than double pre-pandemic levels. The need for more personal space accompanied by historically low mortgage rates and higher disposable income, has strongly influenced the housing markets. The value of permits for single-family homes rose 8.0% in 2020 to its fifth highest annual value on record ($28.7 billion).

Overall, the value of multi-family dwelling permits continued the upward trend observed over the past 10 years, increasing 6.8% to a record high of $38.0 billion. Typically associated with larger yards and interior space compared with other multi-family ownership properties such as condos (-4.4%), semi-detached homes (+24.2%) were one of the two categories of multi-family dwellings to record a notable gain in 2020.

As more Canadians work from home, demand for commercial office space has dwindled. According to the Canadian Survey on Business Conditions, many businesses reported that they would to continue to offer their employees the possibility of working remotely once the pandemic is over. In the year, the value of permits issued for office buildings fell 9.8%.

Overall, the non-residential sector posted the largest decline since 2009, down 17.0% to $33.8 billion—the lowest value in four years. All components were down in 2020, with the commercial component setting a record drop of 21.2% and reaching its lowest level since 2017. Going against the grain, Ontario commercial permits increased 5.1%.

Source: Statistics Canada