Toronto, Vancouver Housing Markets Face Deepest Decline in 50 Years

The toll that rising interest rates are taking across Canada’s housing markets became even more apparent as reports from local real estate boards revealed the downturn was deepening from coast to coast. “Prices are sliding fast, and the exuberance that permeated these markets earlier this year is being replaced by fear,” wrote RBC assistant chief economist Robert Hogue in a recent note. “In the Toronto and Vancouver areas, the decline in activity is quickly becoming one of the deepest of the past half a century.”

Apart from the dive housing took in the early COVID-19 lockdown, home sales in Toronto have fallen to the slowest pace in 13 years, Hogue said. Meanwhile, inventories are climbing quickly, up 58% from 2021, and buyers are now managing to get “meaningful price concessions” from sellers, he said.

Since March the composite MLS Home Price Index has shed $178,000, or 13%, falling to $1.16 million. In July alone prices declined 3.9% or $47,000.

Toronto is not a buyer’s market yet, according to the sales to new listings ratio, but RBC expects home hunters in the GTA to continue to find better deals, especially in the 905 areas outside of the core where prices soared during the pandemic.

Vancouver, where home sales are down 40% over the past four months, is also experiencing a big chill. July saw an estimated 9% decline. Home prices have fallen 4.5% since April, or more than $57,000, but RBC thinks the correction here is still in its early stages. It expects prices to fall more rapidly in coming months, especially in the detached home sector.

The heavy hit to Canada’s two most expensive cities was predictable, but signs of the correction are now cropping up in more affordable cities as well. “The downturn may be more contained in other markets but unmistaken nonetheless,” wrote Hogue.

Home sales in Montreal this year have been slowing gradually and by July had declined to 17% below pre-pandemic levels. That and a rise in inventories have returned the market to balance, said Hogue.

Previously this had just slowed the growth in prices, but July could be a turning point, with both single-family homes and condo prices actually declining. “This development took place across the region, suggesting a board-based price correction may be underway,” said Hogue.

Even in Calgary, this year’s real estate star, there are signs the market is softening. Home sales remain at historically high levels, but have calmed since the buying frenzy seen at the beginning of the year. Higher interest rates are pushing buyers to more affordable options, like condos, and demand for more expensive detached homes is down. Calgary’s composite MLS HPI peaked in May and has slipped lower since, he said.

A speedy rise to interest rates are the reason for the cross-country correction and with rates expected to go even higher (RBC forecasts another 75 basis by the fall) it will only get worse. “We expect the downturn to intensify and spread further as buyers take a wait-and-see approach while ascertaining the impact of higher lending rates,” said Hogue.

Source: Financial Post


Montreal Home Sales Down 18% From Last July

The Quebec Professional Association of Real Estate Brokers says Montreal sales in July fell by 18% since 2021, with the plexes category alone seeing a 38% drop. The association says sales for the month amounted to 3,080 compared with 3,772 in July 2021, while homes with between two and five units plunged from 454 in July 2021 to 281 in July 2022.

Charles Brant from the association’s market analysis department interpreted the drop as confirmation that the market dynamic has shifted, largely because of a significant hike in the country’s key interest rate. Brant says the magnitude of the interest rate hike accelerated the market’s slowdown, but it is much more gradual than in other major Canadian cities.

At the same time, new listings are up 22% from 4,023 July 2021 to 4,901 in July 2022. 

The median price of single-family homes in Montreal was $550,000 in July, up 10% from the same time in 2021, but down $30,000 from April’s peak of $580,000. Condominiums, often seen as a more affordable housing market entry point, saw their first price drop in 2022 to a median of $391,500, though that is still 9% higher than 2021.

Source: The Star
Source: Financial Post


Latest Home Resales From Toronto/Vancouver/Calgary:

Toronto

Toronto home prices fell just over 6% in July from June, hitting an average of $1.074 million, according to data from the Toronto Regional Real Estate Board. Despite the month-over-month decline, the city’s home prices managed to eke out a 1% increase from July 2021. The number of homes exchanging hands tumbled 47% year-over-year in July and 24% from June, seeing 4,912 units sold.

Despite the slump in sales, TRREB chief executive officer John DiMichele said more households in the Greater Toronto Area will be planning to purchase a home in the future but are uncertain of where the market is headed. The board took aim at guidelines set by the Office of the Superintendent of Financial Institutions.

“Policymakers could help allay some of this uncertainty,” DiMichele said in a release accompanying the data. “As higher borrowing costs impact housing markets, TRREB maintains that the OSFI mortgage stress test should be reviewed in the current environment. Consumers looking to renew their existing mortgages with a different lender should not be subject to an additional stress test burden beyond what they would face with their existing lender.” DiMichele further argued for a transparent process and more sound rationale surrounding the stress test rules.

TRREB chief market analyst Jason Mercer also warned that policymakers would have to take a growing population into account and drive more housing supply construction.

“The Greater Toronto Area (GTA) population continues to grow and tight labour market conditions will drive this growth moving forward,” Mercer said. “Despite more balanced market conditions resulting from rapidly increasing mortgage rates, policymakers must continue to take action to boost housing supply to account for long-term population growth …. With savings high and the unemployment rate still low, home buyers will eventually account for higher borrowing costs. When they do, we want to have an adequate pipeline of supply in place or market conditions will tighten up again.”

Vancouver

The Real Estate Board of Greater Vancouver says July’s home sales were down a whopping 43% from July 2021 and 23% from this past June. Sales in the region totalled 1,887 in July and were 35.2% below the 10-year July sales average.

The board says these figures signal a new market cycle characterized by lessening demand for homes is here. The board also says that part of that cycle includes a gradual rise in the number of homes for sale, but last month’s listings totalled 3,960 homes, down almost 10% from July 2021 and 25% from June 2022.

Meanwhile, the composite benchmark price for the region sat at more than $1.2 million last month, a roughly 10% increase from July 2021 and a 2% drop from June 2022.

“Homebuyers are exercising more caution in today’s market in response to rising interest rates and inflationary concerns,” Daniel John, the board’s chair, said in a release. “This allowed the selection of homes for sale to increase and prices to edge down in the region over the last three months.”

Calgary

Calgary home sales slipped for the second straight month with a 3% decline in July compared to 2021, according to data released by the Calgary Real Estate Board. This is a turnaround for the market which saw better performance earlier this year as homebuyers moved from Toronto and Vancouver to seek out more affordable options. The average price of a home in Calgary reached $491,392 in July, a 0.6% gain from last year.

David Larock, mortgage broker and president of Toronto-based Integrated Mortgage Planners Inc., said markets like Toronto have a tendency to be hit harder than areas like Calgary, which saw sales slip three per cent year-over-year in July, because of the speculative fever the market attracts.

“…Toronto and Vancouver certainly seem to be more impacted than places like Calgary, for example,” Larock said in an interview before Toronto’s July data release on Thursday to describe the overall market slowdown. “Certainly, the most speculative markets have been most impacted psychologically by the one per cent increase by the (Bank of Canada) and probably exactly as they intended.”

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


Building Permits, June 2022

The total value of building permits in Canada declined 1.5% in June to $11.9 billion, mainly due to the non-residential sector, which dropped 10.4% to $3.7 billion, after posting its second-highest monthly value. On a constant dollar basis (2012=100), the total value of building permits decreased 3.4% to $7.2 billion.

Ontario pushes up residential sector

The value of residential permits in June increased 3.1% to $8.2 billion nationally.

The value of multi-family building permits increased 6.5%, with Ontario (+24.8%) leading the way, due to several apartment buildings being built in Mississauga. Overall, 15 out of the 20 highest value permits submitted across all sectors were for apartment or condo buildings.

Construction intentions in the single-family home component declined 0.6% due to large decreases in Manitoba and Newfoundland and Labrador. Gains in Ontario (+2.1%) helped to counter these losses.

Non-residential sector down in June

The total value of non-residential sector permits fell 10.4% to $3.7 billion, largely due to decreases in British Columbia’s commercial and institutional components.

Commercial permit values decreased 2.7%, with declines in eight provinces. In contrast, Ontario saw a notable increase (+37.5%), driven by a permit for a large office building in the city of Toronto.

Construction intentions in the institutional component fell 32.2%, following strong growth in May resulting from a large hospital permit in British Columbia. Conversely, the value of industrial permits rose 0.6%. Notably, it shot up 206.0% in Saskatchewan, largely due to the construction of a new power plant in Moose Jaw.

Record high reached in second quarter of 2022

In the second quarter of 2022, the total value of building permits increased 2.8% from the previous quarter to $35.9 billion with gains in both the residential and non-residential sectors.

The residential sector increased 7.2% this quarter, with gains in the value of both single- (+5.0%) and multi- (+9.3%) family permits. British Columbia led the growth, followed by Alberta and Ontario.

The number of new residential units rose 6.0%, after a decline of 7.8% the previous quarter. This incline was driven by a rebound in the multi-unit component (+8.9%).

The non-residential sector decreased 5.1%, following a strong first quarter. The institutional component (-21.9%) dragged down the sector, following the issuance of two large hospital permits in the last quarter. Commercial permits declined 0.6%, while industrial permits posted gains of 11.4%.

Source: Statistics Canada


Toronto Developers Expected to Delay 10,000 Units as Slowdown Hits Condo Pre-sales

Toronto developers are expected to delay the launch of 10,000 condo units in 2022, as preconstruction condo sales plunge amid higher borrowing costs. This is a sign that the broader real estate slowdown has spread to the preconstruction market, where purchases are seen as bets on future housing because buyers wait years for their properties to be built.

At the beginning of 2022, when resale home prices were spiking, developers had planned to launch 35,000 new condo units in the Toronto region, according to data from condo research group Urbanation Inc. But after a tumultuous five months with multiple interest rate hikes, developers have scaled back plans.

Urbanation estimates that fewer than 10,000 units are now expected to launch over the next six months. In the first half of 2022, about 16,000 units were brought to market. That means about 10,000 units have been shelved.

Preconstruction buyers, the majority of whom are investors, have been spooked by the jump in interest rates even though they do not immediately need mortgages when they buy preconstruction condos. Typically, a 20% down payment is required to secure a preconstruction unit. The buyer pays the remainder after the condo is built.

“The expectation of future rate increases and their impact on prices has a profound effect on presale buyer confidence,” Urbanation said in a report.

During the second quarter, there were 6,792 preconstruction sales. That was down 18% from the first quarter. Over the same period, developers increased the number of new launches by 63% to 9,924 new condo units, flooding the market with product just as buyers were starting to waver.

Demand is expected to soften further as high prices and increased borrowing expenses cause investors to lose the ability to use revenue from renting out their condos to cover the costs of their mortgages and other property-related expenses. Urbanation estimates that, in the second half of 2022, buyers of newly completed condos trying to recoup their expenses through rental income will face an average monthly shortfall of $1.06 per square foot, or the equivalent of nearly $700 per month on a 650-square-foot unit. By 2026, Urbanation predicts, that shortfall, or negative cash flow, will amount to $1.87 per square foot.

“The implication of this is more investor selling than in the past, particularly if returns generated through price appreciation are lower,” the report said. Urbanation added that this is a likely scenario given the higher interest rates.

Urbanation is also predicting that developers could cancel the construction of up to 5,000 condo units, because of higher interest rates and construction costs.

Source: Globe and Mail


More Homeowners Cancelling Listings, Turning Homes Into Rentals as Housing Market Cools

When Shannon Tebb listed her downtown Toronto loft for sale in mid-June, she did everything to make the property attractive for buyers. But by July, she was pulling the property off the market – and not because she’d found a seller.

The Canadian Real Estate Association (CREA) reported June home sales amounted to 48,176, a 24% drop from 63,280 during the same month in 2021. On a seasonally adjusted basis, sales were down almost 6% from May.

The fall has been attributed to interest rates, which are rising at a faster pace than some anticipated and pushing up the cost of a mortgage, and inflation, which recently hit a 39-year high. Both have made it routine for properties to sit for weeks or months, pushing sellers to make tough decisions.

Since she wasn’t getting much interest on her listing, Ms. Tebb terminated it and turned the loft into a rental property instead. “Everyone was saying, ‘Nobody’s going and looking at anything,’ so then we lowered the price … and we had a few walk-ins but nothing, no offers.”

Strata found a surge in people mirroring Ms. Tebb’s decision to delist their property. While January’s hot market saw 380 terminated condo listings in the Greater Toronto Area, the real estate company said June brought 2,822 – a 643% increase.

“We’re seeing a lot of sellers just not getting the price they want and so they’re like, ‘We’re going to hold off’ or ‘I don’t want to sell $50,000 lower from what my neighbour got a month ago because that’s a lot of money,’ ” said Anna Wong, a Strata sales representative.

CREA found the national average home price in June fell 2% from the same month in 2021 to $665,849 and, on a seasonally adjusted basis, was down 4% from May.

“We are seeing some sellers stick on the market. They’re listing their properties trying to get yesterday’s prices and they’re staying on for long periods of time,” said Dan Campanella, a broker with Keller Williams Advantage Realty, who represented Ms. Tebb. Some terminate their listings and continue to live in the properties while they wait for a better time to sell, but others not fetching their desired amount delist to experiment with pricing or turn to the surging rental market.

Research firm Urbanation recently reported falling vacancy rates in Toronto in the second quarter pushed up the average rent to $2,533 with a record high of $3.57 per square foot, up 5.9% in the second quarter compared with the first.

Rentals.ca similarly found average rents in Canada were up 9.5% from 2021, while Vancouver had a 24.7% jump from 2021 and Calgary saw a 26.1% increase.

Mr. Campanella describes the rental market as “on fire,” largely because of prospective first-time buyers. “When their purchasing power drops significantly, they can’t buy their first condo but they still need to move downtown, so now that means there’s more and more people looking for rentals,” he said. “The prices are skyrocketing.”

Anne Hermary, a Vancouver real estate adviser with Royal LePage Westside, has similarly seen a surge in the rental market. While she hasn’t dealt with any listing terminations, she suspects some sellers won’t wade into the market because of current conditions.

Buyers are playing the waiting game too, Ms. Hermary added. “Some are completely out of the picture now because they can’t get financing approval for what they’re hoping to buy, but others are just waiting because they feel the market is going to continue moving down in price.”

Source: Globe and Mail