Canadian Home Prices Rose 11% Annually in March While Sales Fell

The Canadian Real Estate Association (CREA) says home sales in Canada fell in March, while prices were up 11.2% compared to a year earlier. The association says home sales in March were down 16.3% compared with the same month in 2021, when they hit an all-time record.

On a month-over-month basis, seasonally adjusted home sales in March were down 5.4%. The drop in sales came as the number of newly listed homes fell 5.5% on a month-over-month basis in March. 

There were 1.8 months of inventory on a national basis at the end of March 2022 — up from a record-low of just 1.6 months in the previous three months. The long-term average for this measure is more than five months.

The actual national average home price was $796,068 in March, up from $715,696 in the same month last year. The association says excluding Greater Vancouver and the Greater Toronto Area, two of the most active and expensive housing markets, cuts $163,000 from the national average price for March this year.

The Aggregate Composite MLS® HPI was up 1% on a month-over-month basis in March 2022 – a marked slowdown from the record 3.5% increase in February. The non-seasonally adjusted Aggregate Composite MLS® HPI was up by 27.1% on a year-over-year basis in March.

“While the market remains historically very active, March definitely saw a slowdown compared to February in terms of both activity and price growth,” said Jill Oudil, Chair of CREA. “One month does not make a trend, so we’ll have to wait and see if this is the beginning of the long-awaited cooling off of this market.”

Source: Global News
Source: CREA

Canadian Housing Starts Trend Lower in March

The trend in housing starts was 252,497 units in March, down from 253,296 units in February, according to Canada Mortgage and Housing Corporation (CMHC). This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.

“On a trend and monthly SAAR basis, the level of housing starts activity in Canada remains historically high, hovering above 200,000 units since June 2020; however, the trend in housing starts posted a small decline from February to March,” said Bob Dugan, CMHC’s Chief Economist. “The decline in the monthly SAAR housing starts in Canada’s urban areas, was driven by lower multi-unit starts, which were partially offset by higher single-detached starts in March. Among Montreal, Toronto and Vancouver, Montreal was the only market to post growth in total SAAR starts, which was driven by higher multi-unit starts.”

CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a clearer picture of upcoming new housing supply. In some situations, analyzing only SAAR data can be misleading, as the multi-unit segment largely drives the market and can vary significantly from one month to the next.

The standalone monthly SAAR of total housing starts for all areas in Canada in March was 246,243 units, a decrease of 2% from February. The SAAR of total urban starts decreased by 2% to 220,708 units in March. Multi-unit urban starts decreased by 5% to 154,876 units, while single-detached urban starts increased by 8% to 65,832 units. Rural starts were estimated at a seasonally adjusted annual rate of 25,535 units.

Source: Yahoo Finance
Source: Morning Star
Source: CMHC

Bank of Canada Rate Hike Could Cool Canada’s Hot Housing Markets

The Bank of Canada’s aggressive rate hike will push up borrowing costs and likely start to slow the country’s booming real estate market after two years of rapid home price increases. Mortgage rates had already spiked before the central bank raised its benchmark interest rate by 50 basis points to 1% on April 13 – its second increase in two months and its largest hike since the turn of the century. Now, borrowing is becoming more expensive as the typical home price across the country nears $900,000. Within hours of the Bank of Canada’s decision, major lenders raised their prime lending rate, which will increase borrowing costs for homeowners with a variable mortgage.

“As rates move up, it’s going to become harder and harder for households to be able to qualify or afford mortgages at the price levels that we’ve reached,” said Jimmy Jean, chief economist at Desjardins Securities. “Given the cumulative effect of interest rate hikes, we could see prices coming down a bit.”

Toronto-Dominion Bank economist Rishi Sondhi said home prices in Toronto and other hot markets could start to ease in the second half of the year. “Higher interest rates will cool demand, with the most pronounced impacts likely to take place this year,” he said.

Bank of Montreal senior economist Robert Kavcic said: “There was a lot of excess demand built on the fact that home prices were expected to keep rising quickly. As that expectation changes, the demand disappears, and does so very quickly,” he said.

In its announcement, the Bank of Canada said higher rates will be needed to tame inflation, and predicted that housing activity will moderate. But the bank’s senior deputy governor, Carolyn Rogers, said home prices are expected to remain high. “We should remember that it’s starting from an extremely elevated level, so even as it moderates, we still think it will stay high,” she said.

The last time the central bank successively raised interest rates was in 2017 and 2018, in response to the real estate frenzy in Toronto and Vancouver. The overnight rate moved to 1.75% from 0.75%. The higher borrowing costs, combined with tougher mortgage qualification rules and foreign buyer taxes, helped to calm the market frenzy.

As of April 13, the popular five-year fixed rate mortgage is between 3.49% and 4.29%, according to mortgage broker Angela Milosevic, who has brokered home loans in the Cambridge and Kitchener-Waterloo area for about 16 years. “Obviously, the borrowing cost will increase and it will affect the borrowing power,” she said. “It may curb some buyers.”

Borrowers seeking mortgages from banks, which usually have the cheapest loans, will have to prove they can make their home loan payments at a higher interest rate. Under the mortgage stress test, the minimum qualifying rate is the higher of 5.25% or two percentage points above the borrower’s mortgage contract. With the five-year fixed mortgage rate now around 4.29%, that means borrowers must prove they can pay their loans with an interest rate of 6.29%.

Even before the announcement, the volume of buyers had started to wane in some of the country’s hottest markets, such as Milton, a growing Toronto suburb. “We’re definitely seeing a shift,” said Melissa Charlton, broker with the Charlton Advantage real estate team, who has sold homes in the Milton area for about 17 years.

The latest stats for the Toronto region show that monthly home price increases slowed in March. In the Halton area, which includes Milton, the typical home price dropped 2% after rising 7% from January to February, according to the local board. National resale and home price stats are expected next week.

“Buyers are a little bit more wary and also they have more options,” Ms. Charlton said. She added that she noticed a change around mid-March after the first interest rate hike. Homes are taking longer to sell and not drawing as many bids.

However, she does not think demand will dry up. She said her buyers are not that concerned about rising interest rates. Ms. Charlton said she has found that when interest rates rise, prospective buyers start looking at cheaper alternatives to a detached house. “Maybe they could just barely afford that detached and will shift into a semi, but they’re still looking and interested,” she said.

Source: Globe and Mail

Luxury Residential Sales Booming in First Quarter of 2022

Insatiable demand and meagre supply in the GTA’s luxury residential property market are sparking bidding wars and significant price escalation, according to a report by Sotheby’s International Realty Canada. The number of residential properties sold over $4 million in the region soared by 30% year over year in the first quarter of 2022.

Condominium sales in the $1 million-plus market also saw considerable gains in the first three months of 2021. The number of condos sold over $1 million increased by 120% in the GTA and 72% in the city of Toronto compared to the same period in 2020, the report says.

Don Kottick, president and CEO of Sotheby’s International Realty Canada, says the luxury condominium market is booming due to a confluence of factors. “With the pandemic, we had the perfect storm: low interest rates at the time, the great generational wealth transfer, and millennials and the Gen Zers coming into the market,” he explained. “With the pandemic, we also saw a lot of people looking further afield. But now that it looks like the light is at the end of the tunnel, some people are coming back to the city, which is also pushing demand.”

Andy Taylor, senior vice-president of sales at Sotheby’s International Realty Canada, says there is a lack of inventory in the luxury condo market. “Inventory is very low in the city and no new inventory is on the horizon,” said Taylor, noting there are only 35 to 40 ultra-luxury condo units over 6,000 square feet on the market each year.

Taylor, a broker who focuses on the luxury condo market, is currently selling two, 5,845-square-foot condos at the Ritz-Carlton Residences, properties that he says are in the top 10 of the most expensive condos in the Toronto market. For $23.5 million, the residences include two private elevators, a wine cellar and three fireplaces.

“You’re buying the lifestyle; that’s really what luxury condos are all about,” said Taylor. “And the demand over the past few years has only increased with COVID and domestic buyers looking to move out of a house and into larger units.”

Compared to the booming luxury condo market, real estate sales over $1 million, including attached and single-family homes, experienced more moderate gains, up 11% year-over-year in the first quarter of 2022. Only 7 properties in the GTA sold for more than $10 million so far in 2022, compared to nine during the same period in 2021.

The new figures come after the luxury market witnessed record gains in 2021. Residential sales over $4 million skyrocketed by 224% in the GTA in 2021, fuelled in part by low interest rates and confidence in real estate as a hedge investment.

Kottick said the gains throughout the pandemic were unprecedented. “I don’t think we’ve ever experienced anything like this,” he said, noting that much of the demand and rapid price appreciation are due to a shortage of inventory. “This is definitely a historic time in terms of real estate.”

Rising interest rates will affect the market, Kottick said, but how those rate changes are introduced will determine the impact. “If it’s gradual, then the market kind of responds in a rational fashion,” he said. “If the interest rates are chopped up in bigger increments, then the market gets shocked.”

Source: The Star

Canada Plans to Double Homebuilding in a Decade, but It’s Going to Need Luck Finding Enough Workers

Canada has an ambitious plan to double the pace of homebuilding within a decade but the first big challenge is finding enough skilled workers, as the country grapples with the tightest labour market on record and with construction already at a multi-year high. Building more homes is a key peg of the $9.5-billion (US$7.5 billion) in housing spending outlined by Prime Minister Justin Trudeau’s Liberal government in their latest budget.

The average selling price of a Canadian home has surged more than 50% in the last two years, driven by record low interest rates and tight supply. Construction has failed to keep pace with immigration-driven population growth.

But the plan to build hundreds of thousands of new homes runs counter the reality that homebuilding is generally the purview of municipal and provincial governments, leaving the federal government little role beyond handing out money. “It’s very ambitious. I would say it’s going to be equally challenging to pull it off, simply because the construction sector is already more or less operating at full capacity,” said Robert Kavcic, senior economist at BMO Economics. “And we are already building a record number of homes in this country.”

Canada has the lowest number of housing units per 1,000 residents of any Group of Seven nation, and that has been on the decline due to population growth, Bank of Nova Scotia economists said in a report last year. There are nearly 300,000 units under construction across Canada, compared with about 240,000 just two years ago, government data  shows.

Canada is building “a lot and not enough,” said William Strange, professor of economic analysis and policy at the University of Toronto. “We’ve taken decades getting into this situation and we’re not going to get out of it in six months.”

Canada has added more than 100,000 construction jobs in the last four months alone, a historic run of increases for the sector. Overall jobless rate fell to a record 5.3% in March.

“Just the sheer volume of work that exists within the industry (creates) a lot of pressure on the various trades,” said Jim Ritchie, chief operating officer of Tridel, which develops condominiums in the Toronto area. “So there’s a lot of demand for that workforce.”

Canada’s immigration program could be a double-edged sword, as it brings in more skilled workers to replace a fast-retiring workforce, but also fuels housing demand. There is also a mismatch between the workers Canada is currently targeting and those it needs. “Right now, our immigration policies are more geared towards attracting white collar labour than blue collar labour,” said Mike Moffatt, senior director of policy and innovation at the Smart Prosperity Institute.

Construction costs rose nearly 10% in 2021 and are set to climb again, driven by higher labor and materials costs, adding to the near-term challenges, said Ritchie of Tridel.

Municipal and provincial approval delays, which the federal government hopes to address with a $4-billion “Housing Accelerator Fund,” and the availability of land add to the hurdles. “There a whole bunch of levers that need to be pulled and increasing labour supply… is one of them,” said Justin Sherwood, a spokesperson for the Building Industry and Land Development Association in the Toronto area.

Still, Canada’s Finance Minister Chrystia Freeland was undeterred. “We are going to do everything we say we’re going to do,” she told reporters when asked about the challenge of meeting the plan. “A growing population needs a growing housing supply.”

Source: Financial Post

Housing-Focused Budget Targets Foreign Buyers, Promises to Double the Pace of Home Building

Canada’s housing affordability crisis is a central focus of the federal budget, with the Trudeau government unveiling plans to curb foreign buyers, help first-time homebuyers and double the pace of new home construction over 10 years. The typical home price across the country has jumped 52%, to $868,400, over the past two years, the Canadian Real Estate Association says, while shortages of rental apartments have spread to smaller cities, creating new urgency for policy-makers. It is unclear what kind of impact the budget measures will have on taming prices, and economists have already warned that some of them will have a negligible effect.

The government has said foreign investors and speculators are buying homes that should be available for Canadians but that a lack of supply is the main reason prices have skyrocketed. The budget estimates Canada needs 3.5 million new homes by 2031 for a growing population.

About 200,000 new homes are built every year. In a bid to double that level, the government is planning a new $4-billion housing accelerator fund to speed up construction of 100,000 housing units in cities and rural areas over the next five years. The fund would be available to municipal governments, including smaller ones in Atlantic Canada, and not just major centres such as Toronto and Vancouver.

The budget promises an additional $1.5-billion to extend the government’s rapid housing initiative to build social housing units; an extra $2.9-billion for a program to repair old affordable housing units; and hundreds of millions of dollars for measures such as affordable housing in the north and energy-efficient homes.

One new policy includes banning foreign non-residents from buying homes in Canada for two years – although the plan provides exemptions for those with work permits and international students on a path to permanent residency. There is no publicly available data showing foreign buyers played a major role in the pandemic’s real estate boom. The most recent numbers indicate that in 2020, non-residents owned 2.2% of homes in Ontario and 3.1% in British Columbia, according to the Canadian Housing Statistics Program.

Additionally, the budget targets two types of home flippers with new taxes: buyers who sell their homes within 12 months of purchasing them; and new home construction buyers who sell the right to buy the preconstruction property, also known as an assignment sale.

The budget put aside $5-million to develop a homebuyers’ Bill of Rights to bring more transparency to the buying process. That will include ending the practice of blind bidding, where competing buyers do not know what the others are offering to pay.

The government gave many other real estate investors a pass. The budget repeated the Liberal Party message that “small, independent landlords,” or real estate investors who invest for themselves, did not drive up home prices and stayed clear of any changes to down-payment requirements on investment properties. Some banks ask for a 20% down payment on an investment property.

The budget did not immediately impose a new tax regime for large real estate investors. Instead, it proposed to examine the role of large corporate players with an eye to announcing changes by the end of the year. The Liberals have previously accused real estate investment trusts (REITs) of buying up rental housing and increasing rents. REITs are exempt from paying tax on their net income if they pay it to unitholders. Other big real estate investors, such as Canadian pension funds and private equity firms, are also exempt from taxes on their net income. 

Among its other changes, the budget proposes to extend anti-money laundering and anti-terrorist financing requirements to all mortgage lenders, not just the banks. 

It also includes measures that economists have said will stoke demand in an already frothy market. That includes creating a new tax-free savings account for first-time homebuyers to save up to $40,000 for a down payment, as well as doubling to $10,000 the first-time buyers’ tax credit, which provides a tax rebate on closing costs such as land transfer taxes. As well, the budget extends the federal shared equity program that allows buyers to get an interest-free loan from the government.

Source: Globe and Mail

Twice as Many Canadians Putting Plans to Buy a Home on Hold – and Here’s Why

Could buyer fatigue be setting in at last amidst Canada’s seemingly unsinkable housing market? A new poll Scotiabank suggests so.

According to the survey, Canadians are less likely to buy a home now than they were at the height of the pandemic. Worries about the rising cost of living, interest rate hikes, stock market volatility and economic uncertainty from the Russian, Ukraine war are all piling on to smother home-buying dreams.

Twice as many Canadians are putting their plans to buy a home on hold. Of those surveyed in 2022, 43% said they were shelving plans, compared with 33% in 2021 and 20% in 2020.

Especially among younger generations. More than half of Canadians aged 18-34 say the current economic environment has hurt their finances, causing them to delay home ownership. 90% believe that home prices will keep going up over the next 12 months and 62% are waiting for them to come down before they buy a house.

Canadians have plenty to be exhausted about. Over the past year housing affordability in this country has declined at an almost record pace. The only time it was worse was in 1990, says the latest RBC housing affordability measure.

According to RBC senior economist Robert Hogue, the outlook for affordability is grim. “Rapid price escalation in the early months of 2022 has already raised the bar to impossible levels for many homebuyers,” said Hogue in his report.

Bank of Canada interest rate hikes this year (RBC expects at least 150 basis points) will push homeownership costs even higher. “Worst-ever affordability levels could well ensue, putting buyers in a precarious spot,” wrote Hogue. It now costs a household in Vancouver 73.9% of its income to own a home. In Toronto it’s 68.6%.

And the sky-high prices Canadians are paying for homes means they are a lot more sensitive to rising interest rates than they were a decade ago. A 1% rise in mortgage rates would boost payments by $315 a month for a standard $775,000 home in Canada, said Hogue, about double what the increase would have been 10 years ago.

“While income gains will provide a partial offset, it’s entirely possible RBC’s measure could spike to all-time highs in the year ahead. A shock of this magnitude would severely stress homebuyers and exert significant downward pressure on demand,” he wrote.

It’s no surprise then that Scotiabank’s poll found almost 60% of homeowners are choosing to stay put and renovate their place rather than buy a new one in 2022, up from 56% at the peak of the pandemic. More Canadians too, 35%, are looking to move out of their city this year in order to get more housing for their money, compared with 29% last year.

Source: Financial Post