CREA Slashes Canadian Home Price Forecast as Values Drop for Sixth Consecutive Month

The Canadian Real Estate Association (CREA) is cutting its forecast for home sales in 2022 and lowering its expectations for price growth as some of the country’s hottest markets cool from their pandemic highs. In its latest housing market outlook the association said it expects 532,545 properties to trade hands via Canadian MLS systems this year, down 20% from the 2021 annual record. Sales will drop another 2.3% in 2023 to total 520,156, CREA said.

The national average home price is forecast to rise by 4.7% to $720,255 by the end of the year and edge up another 0.2% to $721,814 in 2023. The outlook is down from CREA’s forecast in June that predicted a 14.7% decline in sales this year and a 10.8% increase in the national average home price.

CREA attributed the forecast’s revision to a shift in market dynamics that has seen much of the heat dissipate from regions of the country where prices were surging and competition for homes was high. CREA has since found seasonally-adjusted home sales in August totalled 36,914, down 1% compared with July. The actual number of home sales amounted to 38,368, almost 25% lower than August last year.

Rishi Sondhi, an economist with TD Economics, pointed out August’s sales were the sixth consecutive monthly decline and 17% below their pre-pandemic levels. Sales were down in nine of 10 provinces, with the steepest drops taking place in Manitoba, Quebec and B.C. Ontario was the only province to “muster a gain” that was largely fuelled by an increase to sales in Toronto.

“August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” said Jill Oudil, CREA’s chair, in a release.

The national average home price was $637,673 in August, down 3.9% from the same month last year. The cooling experienced by several markets, including Toronto, has been caused by climbing interest and mortgage rates that put a damper on sales and started to weigh on prices.

“Even in the month of August, when it wasn’t necessarily a time when traditional buyers would be out there, there were buyers out there because they knew that rents were about to go up again at the beginning of September and there would be real consequences if they didn’t buy anything,” said Davelle Morrison, a Toronto broker with Bosley Real Estate Ltd.

Others are convinced greater price drops are on their way and are holding off on making the biggest purchase of their life, Oudil found. “Some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing,” she said.

Ahead of CREA’s data release, BMO Capital Markets senior economist Robert Kavcic said the housing sector is facing a “unique” situation because many potential buyers got pre-approvals from before the Bank of Canada’s tightening and are now seeing discounts between 10% and 20% on housing. “If you can buy at a discount with a mortgage rate that no longer exists, it could be enticing,” he wrote in a note to investors. “But the bigger picture is that there is still an enormous interest rate shock to absorb.”

The last time a similar one-year increase in the carrying cost of an average home purchase in Ontario was seen was in the late 1980s, he added. “In other words, this is the sharpest tightening of housing conditions in a generation, and it will come with further adjustment.”

Sellers are having a hard time making sense of the new market and some are even holding back listing their properties. “They don’t really seem to understand that … this is a different market than the one your neighbour dealt with,” said Morrison. “You’re going to get less than your neighbour even though your house or your condo is superior to that of your neighbour’s.”

On a seasonally-adjusted basis, 67,775 homes were listed in August, down 5.4% from July. The actual number of new listings hit 65,776, a 3.3% increase from a year earlier.

Source: The Globe and Mail
Source: The Star
Source: CREA
Source: CREA


Housing Inventory May Reach Crisis Point in Major Canadian Centres, Report Finds

Inventory levels in major Canadian housing markets have been dwindling over the past decade, with active listings in July running below the 10-year average in most cases, according to a report released by Re/Max Canada. The organization’s Housing Inventory Report report, based on Canadian Real Estate Association data and insights from the Re/Max network, examined active listings in July from 2013 to 2022 in eight Canadian centres and found inventory levels have fallen short of the 10-year average in seven of them in 2022.

Double-digit declines were noted in Halifax-Dartmouth (65.5% below the 10-year average); Ottawa (almost 42%); Montreal (40%, from a nine-year average); Calgary (26%); Winnipeg (23%); and Greater Vancouver (16%). The housing inventory shortage was less-pronounced in the Greater Toronto Area (GTA), where it was down almost 7% from the 10-year average. Hamilton-Burlington was the only market to buck the trend, landing at 3.2% above average.

Christopher Alexander, president of Re/Max Canada, said population growth has played a significant role in depleting inventory levels from coast to coast over the past decade, triggering chronic housing shortages in large urban centres that have resulted in “mini boom and bust” cycles. “If we don’t move now to build more housing in the current lull, it’s expected that this same scenario will continue to resurface over and over again,” Alexander said in the report.

Canada experienced double-digit population growth between 2006 and 2021, a trend that is expected to continue given Ottawa’s commitment to welcome 1.2 million newcomers into the country between 2021 and 2023. However, in the context of the housing stock shortage, the rising numbers of new Canadians combined with an increase in household formation overall, are expected to intensify the inventory shortfall further.

A recent report from the Canada Mortgage and Housing Corporation (CMHC) concluded that the country would need to build 3.5 million new homes by 2030 to improve affordability, yet Canada is averaging only 200,000 to 300,000 new units per year. “During this window of softer demand, building efforts should be ramped up, not down. The offshoot effect is straining rental markets and contributing to ever-rising levels of homelessness throughout the country,” Alexander said.

Meanwhile, CMHC noted a decrease in the seasonally adjusted annual rate of housing starts in Canada’s urban areas in July 2022, driven by lower starts in the single-detached category. Stronger declines in multi-unit residential starts were registered in Vancouver, while a substantial slow-down occurred in both multi-unit and detached residential starts in Montreal.

Yet, the trend is perhaps most pronounced in the country’s largest housing market — the GTA. According to a second quarter Condominium Market Survey by real estate research firm Urbanation Inc., approximately 35,000 new condo units were originally expected to launch for pre-construction sale in the GTA in 2022. While close to 16,000 units were launched in the first half of the year, fewer than 10,000 units are now expected during the remainder of 2022, suggesting that 10,000 units have been shelved.

Falling real estate prices may be adding to the current pressure on inventories, creating a disincentive for new construction. TD Bank economist Rishi Sondhi predicts that “the average price of a home in Canada could fall between 20% and 25% from its peak seen earlier this year” by early 2023, but that there is a likely a floor on how low they can go. “Several factors … 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 wrote in a recent report.

Other Industry watchers have cited a number of factors emerging to create a perfect storm that will keep housing scarce now and in the future, including inflation and rising interest rates, increased global supply-chain interruptions, swelling construction costs and a serious shortage of labour in the skilled trades, as well as high land acquisition costs and slow municipal approval processes.

“The trouble is that housing development is a slow process, and experience tells us the only thing slower might be government processes,” Alexander said. “Removing barriers and cutting red tape is necessary. A crisis is looming, but the outcome is not cast in stone. There is a short runway to reverse course before the impacts become very real for Canadian home buyers and renters.”

Source: Financial Post


Interest Rate Hike to ‘Intensify’ Canada’s Housing Market Downturn

Canada’s real estate slump is about to deepen, as the rising cost of borrowing pushes more buyers out of the market, economists predict. In announcing its latest interest-rate hike on September 7 – to 3.25% from 2.5% – the Bank of Canada said the overnight lending rate will need to go even higher to dampen inflation.

Since the central bank started lifting interest rates from the low of 0.25% in March, home sales have plunged along with home prices. “We see the downturn intensifying and spreading as buyers take a wait-and-see approach while ascertaining the impact of higher lending rates,” said Robert Hogue, assistant chief economist with Royal Bank of Canada.

So far this year, home prices have recorded their sharpest five-month drop since the global financial crisis in 2009. The national home price index is down 6% from its peak in February. The index is the industry’s preferred measure of home prices because it adjusts for volatility and excludes the high end of the market.

In the Toronto region, the home price index declined nearly 16% from March to August, with some of the city’s suburbs losing more than 20%. Mr. Hogue said the country’s priciest real estate markets, which include the Toronto suburbs, were the most vulnerable to declines because of their unaffordability and their previous astounding price increases.

In the first two years of the pandemic, the typical home price in Durham region, east of the city, rose nearly 90%, while prices climbed nearly 70% in Halton, to the west. These suburbs are now leading the way down with typical Durham home prices falling 21% or $249,300 over the past five months, according to the local real estate board. Prices in Halton have dropped by 23% or $337,700 over the past six months.

After a slow summer in which sales fell below prepandemic levels in some parts of the country and homes lost value, realtors were hoping the market had reached bottom. But economists say home prices will continue downward. Bank of Montreal economists said the central bank’s guidance solidified their view that the national home price index could fall by 20% from the peak earlier in the year to the bottom sometime next year.

Borrowers will soon pay more in interest. It’s just a matter of when. Most holders of variable rate mortgages have static monthly payments, but they will immediately see a higher share go toward interest rather than paying down principal. People with fixed-rate mortgages will pay a higher monthly amount when they renew them. Homeowners with a home equity line of credit will immediately pay a higher interest rate on their loan.

It will also continue to be harder for would-be buyers to qualify for a mortgage, and they will be able to get less. “Borrowing power is going to be reduced once again,” said Don Scott, chief executive officer of mortgage brokerage Frank Mortgage.

The recent interest-rate hike will make the mortgage stress test harder. Under federal bank rules, borrowers must prove they can make their monthly mortgage payments at an interest rate that is at least two percentage points higher than their actual rate.

According to Mr. Scott, the cheapest variable-rate mortgages may soon be 4.35% and the lowest five-year fixed mortgage rate will top 5%. That means borrowers will have to prove they can cover their payments with an interest rate at 6.35% and 7%, respectively.

And this in turn means would-be homebuyers will not be able to spend as much. It will be particularly hard for first-time homebuyers, said Laura Martin, chief operating officer of mortgage brokerage Matrix Mortgage Global. Ms. Martin said repeat buyers, however, have benefited “massively” from the runup in prices over the past four years, and will be able to use their equity from any sale to help with another purchase.

Source: The Globe and Mail


Canada’s Home Sales and Prices are falling. Has Something Changed in the Housing Market?

Across Canada, the number of houses and condos being sold is dropping, and what’s more prices are falling. But has anything fundamentally changed in the real estate market?

This week on the Down to Business podcast, Murtaza Haider, a professor of real estate management at Toronto Metropolitan University, explains why he thinks housing prices in Canada will return to their space-ward trajectory.

Haider said rising interest rates have forced prospective homebuyers to look in lower price brackets, which is bringing housing prices down. But he thinks the problem remains the same — too many people, not enough houses.

But as hybrid work arrangements take a more permanent shape, and companies reconsider their commercial office space, things could change. But that remains several years away at best. Visit the Financial Post website to listen to the full episode of the Down to Business podcast.

Source: Financial Post


CMHC reports annual rate of housing starts in August down from July

Canada Mortgage and Housing Corp. says the annual pace of housing starts in August slowed compared with July. The national housing agency says the seasonally adjusted annual rate of housing starts in August was 267,443 units, down 3% from 275,158 in July.

The decrease came as the annual pace of urban starts fell 3% to 246,771 in August with the rate of multi-unit urban starts down 4% at 187,602. Urban starts of single-detached homes rose 1% to 59,169 units. Meanwhile, rural starts were estimated at a seasonally adjusted annual rate of 20,672 units.

The six-month moving average of the overall monthly seasonally adjusted annual rate was 267,309 units in August, up from 264,467 units in July.

“The six-month trend in housing starts was higher in August compared to July, despite a lower monthly SAAR. Housing starts activity remains elevated in Canada historically and have been well above 200,000 units since 2020,” said Bob Dugan, CMHC’s chief economist. “The decline in monthly SAAR housing starts in Canada’s urban areas in August was driven by lower multi-unit starts. A decline in single-detached units in Vancouver was offset by higher multi-unit starts. Toronto posted strong increases across the board, while Montreal recorded a large (33%) decline in multi-unit starts, resulting in the overall decline for Canada.”

 Source: Toronto Star
Source: CMHC