Canada’s Housing Market Isn’t Melting Down as You’ve Been Led to Think

Housing markets are unique for their location, type, quality and size, so a decline in the average housing price is not the same as a decline in the price of an average house, which sometimes makes it difficult to decide whether it’s the right time to buy or sell. Adding to the confusion is that some metrics suggest prices are falling and others show an increase, though, overall, housing sales are down significantly compared to the peak activity in February, while average prices are down to a lesser extent.

Let’s unpack the numbers in the Greater Toronto Area (GTA) as an example to clarify how markets are moving.

Sales in the GTA were down to 5,627 units in August, a year-over-year decline of 34.2%, while the average house price rose by a tiny 0.9%, according to Toronto Regional Real Estate Board (TRREB) data.

But TRREB’s quality- and size-adjusted Home Price Index (HPI) is a better indicator of price movements, because smaller and hence lower-priced homes might sell more frequently during slowdowns, which can lower the average price. Compared to August last year, the HPI was up 8.9%, which seems a lot different from the dismal-sounding newspaper headlines and economist forecasts. What gives?

It appears a lot depends upon how the metrics are generated. For example, instead of comparing current sales and prices with those from the same period a year ago, you could make the peak housing sales activity in March 2022 the benchmark. Any comparison with March will exaggerate the declines.

Sales in the GTA in August were down 48.3% from the peak sales observed in March, a much more significant decline than the 34.2% drop from August last year. Similarly, average prices in August, not adjusted for quality or size, were down 18% from the peak prices observed in February.

Are housing prices declining or climbing then?

The answer depends upon perspective. If, say, someone bought a house at the peak of the housing market in February and is trying to sell the same property today, they are likely to experience a noticeable loss. However, such a cohort is usually small. Most homebuyers stay at the same place for longer than just a few months.

Even the significant decline in housing sales relative to the peak in February hides the fact that sales activity in lower-priced homes has picked up since then. The number of homes sold for less than $600,000 in the GTA has increased by almost 70% since February, while sales for homes sold for more than $1.5 million declined by 71%.

The shift from expensive to cheaper homes contributes to the decline in average home prices. But the decline in average prices does not necessarily mean that the price of an average or typical home has also declined by the same rate, because average prices are being computed for housing whose quality and size vary considerably over time.

Despite these caveats, sales volume in 2022 will clearly be considerably less than observed in 2021. Housing experts attribute the decline to the increase in the cost of borrowing resulting from the steep rise in mortgage rates.

But what is ignored in such pronouncements is a phenomenon known as the “forward buy,” where consumers move up their purchases to benefit from a rebate or avoid paying an expected new tax later. In 2021, ultra-low mortgage rates were partly responsible for the extraordinary sales volume because many households likely advanced their home purchase from 2022 to 2021, thereby boosting sales.

Housing sales in the GTA jumped by 28% in 2021 from the year before, reaching an all-time high of 121,642. Overall, over 100,000 more sales were recorded in 2021 by the Multiple Listing Service in Canada than the long-term annual average. The decline in sales in 2022 is partly because some of 2022’s sales were lost to 2021.

These more nuanced statistics should help us realize that Canada is not experiencing a meltdown in housing markets. The magnitude of sale and price movements is in the expected range.

And since the average number of days a property is on the market increased to 34 in August from 11 in February, buyers in the GTA can now take their time deciding. The days of multiple offers and rapid sales are over, at least for now, which should be good news for homebuyers.

Source: Financial Post

Building Permits, July 2022

The total value of building permits in Canada declined 6.6% in July to $11.2 billion, mainly due to the residential sector, which fell 8.6% to $7.6 billion. The non-residential sector also dropped slightly by 2.1%. On a constant dollar basis (2012=100), the total value of building permits decreased 4.8% to $6.9 billion.

Ontario pushes down residential sector

In July, residential permits decreased 8.6% to $7.6 billion nationally. Strong gains in British Columbia and Quebec were more than offset by weak construction intentions in six other provinces.

Construction intentions in the single-family homes component declined 5.7%, as decreases in Ontario (-13.9%) more than offset the gains in six provinces. Despite the decline, this component remained 14.8% higher than the same month of 2021.

The value of building permits in the multi-family homes component dropped 11.1%. Declines were posted in six provinces, with Ontario (-32.8%) reporting the largest decrease. Conversely, British Columbia had a number of permits for condos and apartments, pushing the province’s permits value up 9.3%.

Industrial component drags down non-residential sector

In July, the total permit value of the non-residential sector decreased 2.1% to $3.6 billion. Gains in the commercial and institutional components were more than offset by losses in the industrial component.

The value of building permits in the industrial component tumbled 16.9%, largely due to Ontario (-31.1%), which had its third consecutive monthly decline. After nearing the billion-dollar mark back in January and April, the component has returned to more typical levels.

Commercial permit values edged up 0.1%; Alberta (+72.8%) had the highest increase, stemming from various permits issued in Calgary and Edmonton.

Construction intentions in the institutional component jumped 7.9%, with British Columbia (+207.2%) leading the charge. Weak results in June, as well as several large permits, contributed to the significant increase in July.

Spotlight on Newfoundland and Labrador

The value of residential permits, along with the number of units in Newfoundland and Labrador, has been on a downward trend since its peak in early 2010, with the lowest values for the series observed at the beginning of the COVID-19 pandemic. This trend has been impacting both single- and multi-family dwellings similarly. A small recovery has been observed during the pandemic, but the recovery has been mainly driven by an increase in construction costs.

Newfoundland and Labrador’s population has remained relatively consistent at around 520,000 since 2010 (table 17-10-0009-01), leading to a smaller demand for new houses. In contrast, other provinces have had notable increases in both population and number of units during the same time period.

Since 2010, non-residential permits for the province have also been on a downward trend. On an annual basis, from 2010 to the end of 2021, the total value of permits for the sector in Newfoundland and Labrador has decreased 59.0%, while Canada, excluding the province of Newfoundland and Labrador, has jumped 38.0%.

Source: Statistics Canada

Canada to Fund ‘Rent-to-Own’ Program Under $2-Billion Housing Plan

Canada is moving ahead with a “rent-to-own” housing program, Prime Minister Justin Trudeau said on August 30, as he set out $2 billion worth of spending toward a previously announced plan to double homebuilding over the next decade.

The funding, earmarked in previous budgets, would go toward creating some 17,000 new homes across the country, including more rapid housing for the homeless or those at risk of becoming homeless, along with affordable and market-rate housing projects. The program would also help housing providers develop and pilot a new rent-to-own model, aimed at creating a path for Canadians transition from renting to buying their first home, Trudeau said at a news conference in Kitchener, 

Canada’s home prices surged more than 50% during the COVID-19 pandemic, buoyed by rock-bottom interest rates and booming demand. But recent sharp increases in interest rates by the Bank of Canada, which is aiming to curb high inflation, have cast a chill on the housing market.

Although home prices are softening, higher mortgage qualifying rates are keeping some would-be-buyers out of the market. “Tackling housing affordability is a complex problem … simplistic solutions are simply not going to solve the problem,” Trudeau said.

Canada’s national housing agency has said the country needs to build millions of new homes by 2030 to restore affordability, and Trudeau’s Liberal government has pledged to double the pace of homebuilding over the next decade. But achieving an affordable housing market may prove difficult, as home construction is already at a multi-year high and the construction industry faces a dire shortage of skilled workers.

Source: Financial Post

TD Bank Sees Up to 25% Drop in Canadian Home Prices by Early 2023

A new TD Bank report suggests the average price of a home in Canada could fall between 20% and 25% from its peak seen earlier in 2022 to the first quarter of 2023. The report released on August 29 comes as a decrease in prices materialized in the summer as mortgage and interest rates rose. Many are expecting the drop to continue well into fall and even winter.

The latest data from the Canadian Real Estate Association (CREA) showed prices hit $629,971 in July, down 5% from $662,924 last July. On a seasonally adjusted basis, it amounted to $650,760, a 3% drop from June.

The report’s projected price drop represents an unprecedented decline at least going as far back as the late 1980s, when the data began, but it follows an unequally unprecedented rise during the pandemic, TD economist Rishi Sondhi wrote. “Our forecasted decline in national home prices would only partially retrace the 46% run-up over the course of the pandemic,” said Sondhi. “As such, our forecast can be more aptly described as a recalibration of the market, instead of something more severe.”

Sondhi says worse effects will likely be avoided because of several factors that will help cushion housing demand and prices — the fastest rate-hike cycle in decades, growing consumer incomes and excess savings and low inventories in the new and resale markets.

Sondhi’s pricing forecast is in line with one made by a trio of Desjardins economists. They expected the average national home price to fall by 15% between its February high – $817,253 – and the end of 2023, but adjusted their forecast in August to predict a drop between 20% and 25%.

Meanwhile, CREA forecast in June that the national average home price will increase by 10.8% on an annual basis to $762,386 by the end of 2022 and hit $786,252 in 2023.

Meray Mansour, a Toronto real estate agent, said Sondhi’s forecast seems more realistic based on what she’s seen in recent months. In Toronto neighbourhoods like the Beaches and Leslieville, she’s found prices have already fallen by 10%. “The really smart buyer is jumping on the opportunity, but some buyers are thinking like a lot more … it’s going to go down a lot more,” she said. She sees this period as a “reset,” especially for sellers accustomed to bidding wars and soaring prices while the market was on a tear during the pandemic.

Sondhi’s report also estimated the number of home sales will fall 35% by the first quarter of 2023. “Our forecasted peak-to-trough decline in Canadian home sales falls well within the range seen in past housing downturns and was surpassed by the global financial crisis sales tumbled by 38%,” Sondhi wrote.

CREA found July home sales fell 5.3% compared with June. The actual number of sales in July was 37,975, down 29% compared with July 2022.

In the long term, TD remains positive on the outlook for housing because it predicts population growth should remain healthy, underpinning fundamental demand for housing.

Source: The Star
Source: Financial Post

Canada’s Millennials Still Bent on Owning Homes, Even if It Means Relocating

Canadian millennials remain committed to buying homes, so much so that many are prepared to leave the country’s biggest cities in order to find a house they can afford, according to a survey by Royal LePage. Millennials are aged 26 to 41. Some 60% of that cohort aim to get out of the rental market, or their parents’ basement, despite some of the highest real-estate prices in the world, the survey said. However, of that group, 52% said they would have to relocate to do it.

Canada’s housing market is cooling. However, the country’s larger urban markets remain out of reach for would-be buyers who haven’t had the time to stash enough money for a down payment, or who earn too little to qualify for the mortgages required to buy in places such as the Greater Toronto Area, Vancouver and Montreal.

The survey results could signal that demand for housing in smaller cities and rural areas — which spiked during the pandemic, as the forced shift to remote work made working from anywhere a possibility — could continue, even as all the restrictions tied to COVID-19 fall away. Royal LePage said its study suggests that more than four million young Canadians will be looking to make a purchase between now and 2027.

“A huge number of millennials are telling us, `Yes, if I move, I could own my home,’ and that is very surprising,” said Royal LePage CEO Phil Soper. “We haven’t seen this before, and I’m sure this is a direct result of what we saw during the pandemic, which was people slowly leaving (Toronto) for places like Saint John, New Brunswick, and Moncton (N.B.), and PEI, and Montreal, as well as Calgary and B.C. We saw people migrating when they found they could work from home.”

Three quarters of millennials said that if housing was more affordable, they would prefer to stay in their current city or town. However, 54% do not believe their salaries will increase at a rate that will allow them to buy a home in their current location. When asked what their ideal scenario would be, 19% of respondents said they would prefer to live in the city and work fully remotely, and another 19% said they would prefer to live outside the city and work fully remotely.

Take Montreal, where a significant number of millennials appear set to leave, even though housing prices are the cheapest among Canada’s biggest cities. Some 82% of millennials who do not currently own a home believe they will one day, the highest rate among regions surveyed by Royal LePage; however, 55% of that group said they would have to relocate in order to achieve that milestone. The average cost of a single detached home in Montreal was $533,300 in July, compared with $1,357,500 in Toronto, $2,000,600 in Vancouver, $643,600 in Calgary, and $770,000 in Ottawa, according to the Canadian Real Estate Association.

Still, the survey found that just 35% of millennials in the Greater Montreal Area are homeowners, lower than all the other big Canadian cities covered in the survey. The cause could be related to wages, as the average annual income in Montreal — $40,079 — is 15.6% lower than the national average of $47,487, according to

Still, 61% of Montreal’s millennials plan to purchase a home within the next five years; 56% say they will remain in their current city or town, while 38% say they plan to relocate.

The relatively lower prices in Montreal appear to offer millennials hope of staying that doesn’t exist in other cities. In the Greater Toronto Area (GTA), 59% of millennials who do not currently own a home believe they will one day, but 63% of them said they would have to leave Canada’s biggest city to do so.

In Vancouver, 78% of millennials said that if the cost of living wasn’t an issue, they would choose to continue living there. However, 58% said they didn’t believe their salaries would increase at a rate that would allow them to buy a home in their current location — the highest rate among regions surveyed.

Soper said relocating simply to buy a home is an “oversimplified way to solve your life’s problems.” Regardless, the commitment of millennials to buying real estate suggests that the strong demand that has driven Canada’s housing boom over the past decade could persist, adding pressure on policymakers to address a chronically short supply of living spaces.

“If you follow their intent, millennials could be the highest homeownership generation in Canadian history,” Soper said. “Now, not all of them are going to pull that off, but even if half of them pull it off, we’d be looking at homeownership rates in this generation at a higher rate than the baby boomers who are the previous record holders.”

Source: The Star