CREA Reports Home Sales Down in April as Mortgage Rates Rise
Increasing mortgage rates slowed home sales in April from the frenzied pace they started the year at, the Canadian Real Estate Association said. The association found the number of homes sold dropped by 25.7% to 54,894 last month from 73,907 in April 2021, when the country set a record for the month. On a month-over-month basis, sales in April were down 12.6% compared with March, but still ranked as the third-highest April sales figure, just behind 2021 and 2016.
“The demand fever in Canadian housing has broken and, who would have thought, all it took was a nudge in interest rates by the Bank of Canada to change sentiment,” said BMO Capital Markets senior analyst Robert Kavcic, in a note to investors.
CREA attributed much of the slowdown to fixed mortgage rates, which have been on the rise since 2021, but have been more impactful in recent months. The association pointed out that typical discounted five-year fixed rates have leaped from about 3% to 4% over the span of a month.
The rate is also weighing on how buyers fare with the mortgage stress test, which once required those with uninsured mortgages — borrowers with a down payment of at least 20% — to carry a mortgage rate of either two percentage points above the contract rate, or 5.25%, whichever is greater.
For fixed borrowers, CREA said the stress test just moved from 5.25% to the low 6% range, another roughly 1% increase in a month.
“People are nervous. They are thinking, ‘if I take on this mortgage, when mortgage rates are going up and the price to (live) is more, what is going to happen?” said Anita Springate-Renaud, a Toronto broker with Engel & Völkers.
She noticed that many homes were still getting multiple offers last month, but instead of 20 offers, two or three was becoming the norm. Properties are also taking longer to sell. Homes that used to find a buyer in three or four days are now sitting for two weeks, in some cases, she said.
Many other realtors have found buyers and sellers holding off on purchasing or listing properties until they see how much of an effect mortgage and interest rate changes have on the market.
“For buyers, this slowdown could mean more time to consider options in the market,” said Jill Oudil, CREA’s chair, in a news release. “For sellers, it could necessitate a return to more traditional marketing strategies.”
This shift in sentiment was reflected in the number of newly listed homes, which, on a seasonally adjusted basis, fell by 2.2% to 70,957 in April from 72,557 in March. On a non-seasonally adjusted basis, new listings amounted to 91,559 last month, down 10.5% from 102,294 in April 2022.
Even though CREA reported slowing sales and fewer listings, Canadians were shelling out even more for homes than they did in 2021. The national average home price was a little over $746,000 in April, up 7.4% from about $695,000 during the same month last year. Excluding the Greater Toronto and Vancouver areas from this calculation, cuts $138,000 from the national average price, CREA said.
However, on a seasonally adjusted basis the national average home price slid by 3.8% to $741,517 in April from $771,125 in March. The home price index benchmark price hit $866,700 in April, down 0.6% from March but up 23.7% from 2021 and 63.9% from 2017. The benchmark price was lowest in Saskatchewan, where it totalled $271,100 and highest in B.C.’s Lower Mainland, where it amounted to more than $1.3 million.
Kavcic found Ontario markets “weakening most and fastest, especially further outside the core of Toronto (these were also the hottest markets in the country during the pandemic).” Ontario’s suburban markets are the “shakiest” because of how prices have fallen from February peaks, but he said single-detached and townhomes look to be cooling quickest.
“Sales in the province slid 21% in April and are now back in-line with pre-pandemic activity levels,” he said. “The market balance has gone from drum tight with ‘not enough supply,’ to one that resembles the 2017-19 correction period.”
Within the province, TD Economics economist Rishi Sondhi found Toronto to be an outlier because sales and prices dropped more there than in the country overall. Sondhi believes the Toronto market is now close to tipping in favour of buyers, but in the coming months, expects prices to continue falling nationally, reflecting the cooler demand backdrop.
Canadian Housing Starts Trend Higher in April
Canada Mortgage and Housing Corp. says the annual pace of new home construction in April rose 8% compared with March. The housing agency says the seasonally adjusted annual rate of housing starts in April was 267,330 units, up from 248,389 in March.
“On a trend and monthly SAAR basis, the level of housing starts activity in Canada remains historically high, hovering well above 200,000 units since June 2020 and increased from March to April,” said Bob Dugan, CMHC’s chief economist. “The increase in monthly SAAR housing starts in Canada’s urban areas was driven by higher multi-unit and single-detached starts in April. Among Montreal, Toronto and Vancouver, Toronto was the only market to post a decrease in total SAAR starts, which was driven by lower multi-unit and single-detached starts.”
The increase came as the annual rate of urban starts rose 10% to 245,324 units in April. The annual rate of multi-unit urban starts rose 14% to 178,092, while the pace of single-detached urban starts increased by one per cent to 67,232. Rural starts were estimated at a seasonally adjusted annual rate of 22,006 units.
The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was 257,846 units in April, up from 253,226 in March.
Statistics Canada Releases Building Permits for March 2022
The total value of building permits in Canada decreased 9.3% in March to $11.7 billion, mainly due to the non-residential sector (-29.5% to $3.7 billion). Two large hospital permits issued in February pushed that month’s total to a record high. On a constant dollar basis (2012=100), the total value of building permits was down 11.5% to $7.6 billion in March.
Residential sector up in March
Residential permits in March increased 4.7% to $7.9 billion nationally. Construction intentions for single family homes were up 3.3%, reaching the highest value since March 2021, with Ontario registering the largest gain of 12.0%. The value of multi-family building permits rose 6.0% nationally, helped by high value projects such as a $457 million permit for the Ravine condos in the city of Toronto.
Non-residential sector pulls back following strong February
The total value of non-residential sector permits fell 29.5% in March, largely due to the institutional component decreasing by 58.5% and returning to more normal levels after two large hospital permits were issued in February. Commercial building intentions in March saw a 7.2% decline, while industrial construction grew 2.8%.
First quarter of 2022 reaches record high
The total value of building permits in the first quarter of 2022 increased 5.3% from the fourth quarter of 2021, to $34.9 billion.
The non-residential sector jumped 18.8% in the first quarter of 2022 to a record high of $12.5 billion, largely due to the institutional component which saw an increase of 58.6% due to two hospital permits issued in Vancouver and Quebec, valued at a combined $1.9 billion. The industrial component saw an 15.3% increase and the commercial component grew by 2.0% for the quarter.
The residential sector saw a 1.0% decline in the first quarter of 2022 compared with the fourth quarter of 2021, with a 3.0% decrease in multi-family permits more than offsetting a 1.3% gain in single-family construction intentions.
Source: Statistics Canada
The Froth is Coming Out of Canada’s Housing Market
Sotheby’s has released its Top Tier report which has a spring forecast and look back at the first quarter of 2022. Don Kottick, president and CEO of Sotheby’s International Realty Canada, spoke with the Financial Post’s Larysa Harapyn about the state of the housing market.
Don discussed increasing interest rates and the effect this is having on the market. He said that consumers are facing a period of adjustment right now while they get used to the rising rates. However, for those who have been in the housing for a while, 5% is a historically low interest rate.
Canada is still facing a chronic under supply of inventory across the country that has been here for decades. So while “the froth is coming out” of the market, there is still plenty of sales activity. It is taking a bit longer to sell properties and days on market are increasing but relative to historic trends it is returning to a more normalized market.
Don also said that buyer confidence is returning to downtown markets. There will still be the “COVID-effect” of people wanting to have more space and live outside the city. However the market is showing people returning to the downtown cores; and with limited supply of detached and semi-detached housing the condominium market is once again seeing increased activity.
The report also looked at some potential headwinds for the market. These include supply issues, shortages of trades people, and union strikes of trades people.
To watch the full interview, visit the Financial Post website.
Source: Financial Post
The Way the Housing Market is Stalling, the Bank of Canada May Have to Hit the Brakes Sooner Than Expected
The numbers are in and, as one economist puts it, April was the cruellest month for the housing market. Home sales data show softening in Canada’s four largest markets, especially Toronto, where prices may have peaked, says RBC Economics.
“All evidence points to the Bank of Canada’s rate tightening cycle starting to have an impact,” wrote RBC economist Carrie Freestone. The drop in sales and slowing home price growth signals a market shift is underway, says RBC.
Sales in April fell 26% in Toronto from March, 22% in Calgary and 17% in Vancouver. “Apart from the early pandemic shock, Toronto’s decline in home sales was the sharpest single-month decline since the market correction in the late ’80s,” wrote Freestone. Aside from Calgary and Edmonton, home sales in other major Canadian markets have sunk below their pre-pandemic levels, says Capital Economics.
Prices have also begun to cool. Toronto prices dropped 6.4% in April on a seasonally-adjusted basis from the month before, the worst drop since April 2020, when the pandemic basically froze the market. Vancouver prices rose 1% but that’s half the average pace over the past six months, said RBC.
Another important indicator is sales-to-new-listings ratios which declined in Toronto, Vancouver and Montreal as fewer Canadians listed their homes, and those who did, saw them sitting on the market longer, said Freestone. Among major markets, only Calgary saw the ratio rising higher into seller’s market territory.
“April proved to be the cruellest month for the housing market, with the recent jump in mortgage rates causing large falls in sales across the country,” wrote Capital’s senior Canada economist Stephen Brown. For the first time since 2010, nationally-available uninsured 5-year fixed rates are all above 4%, writes mortgage analyst Robert McLister in his newsletter. The cheapest is 4.04%, a rate that is two-and-a-half times the record low of 1.64% seen just 16 months ago, he said.
McLister cites TD research that estimates 5-year fixed rates have increased 140 basis points year to date, which equals about a 12% decline in affordability for the average homebuyer. Past periods of rising rates have reduced housing activity by 10-22% in the following year, said TD.
April’s slump in home sales along with the unexpected fall in hours worked seen in recent job data could weigh on GDP, said Capital, which estimates the drop in real estate activity alone could shave 0.2% off the month’s gross domestic product.
A fall in April’s GDP is unlikely to bring a pause in the Bank of Canada’s hiking cycle, said Brown, “nevertheless the plunge in home sales still reinforces our view that the Bank is underestimating the impact that tighter monetary policy will have on the economy.” Capital expects that further drops in home sales and a “marked decline” in residential investment in coming quarters will push GDP growth down in 2023 and cause the Bank to pause its tightening sooner than markets expect.
Source: Financial Post