CMHC Still Sees Weakness for Real Estate Market Ahead 

Canada’s housing market experienced overvaluation in some pockets of the country in the spring amid the COVID-19 pandemic, Canada Mortgage and Housing Corp. said in a new report released on September 21. In cities such as Victoria, Moncton and Halifax, there was a widening gap between the selling price of houses and the price economists would expect, based on population growth, disposable income, mortgage rates and employment, the Crown corporation said.

That data comes from the agency’s housing market assessment, which gives the housing market a grade based on whether homebuilding and rising prices could ultimately affect the stability of the economy. The report doesn’t look at whether homes are affordable — but does try to inform homebuyers and lenders on what would happen to the equity in their homes if a sudden economic shock led to a spike in unemployment, for instance.

CMHC says there was a “moderate degree of vulnerability” in the housing market as of the end of June, the same grade the market received in February. The preliminary report shows the slowdown during the height of COVID-19 lockdown measures, but doesn’t include the record-setting sales in July and August — nor does the data reflect the ending of government income supports and mortgage payment deferrals.

Because the report’s analysis of home price overvaluation relies heavily on analyzing Canadians’ income, the authors suggested that the risk might be underestimated. “The unprecedented income supports from Canadian governments to households (such as the Canada Emergency Response Benefit and the Employment Insurance Benefits) provide relief to individuals experiencing financial hardship due to the COVID-19 crisis. These sources of income are, however, temporary,” said the report.

CMHC economist Bob Dugan said that — despite giving the housing market a steady grade this summer — CMHC still expects a severe decline in home sales and in new construction to come as the economy recovers from the pandemic. “I don’t think we are out of the woods yet. I certainly hope our forecast is wrong,” said Dugan in a phone call with reporters.

In May and June, CHMC had given a grim outlook for the housing sector, including a steep decline in housing prices. Although realtors have reported record-high home sales and prices in July and August, Dugan said he is not convinced that there is a “sustainable basis” for the current homebuying demand.

Canada Mortgage and Housing Corp. (CMHC) stands by its prediction for average home prices to drop between 9% and 18% from peak to trough. “There remain a lot of risks in the housing market, in the economy for that matter,” according to Dugan.

While Canada’s housing market as a whole does not show signs of overheating, outsized price acceleration or overbuilding, some regions do pose moderate risks, the report said. Winnipeg, Edmonton and Calgary are areas where there is “moderate” risk of overbuilding, CMHC said, looking at both second-quarter data and monthly inventories from July and August. In Edmonton, there has been increased construction of detached homes despite weak employment in the oil sector, while in Winnipeg, incoming migration has slowed, CMHC analysts said. Calgary, meanwhile, has seen row houses and townhomes sit empty as cost-conscious buyers opt for condos instead — leaving the city approaching its 2001 record-high of empty new builds.

The report also gave Canada a “low” risk of price acceleration, but noted that prices are rising moderately more quickly in Ottawa and Montreal. In Montreal, the supply of homes for sale was at a 16-year low, pushing prices closer to “problematic” levels.

The Ottawa and Montreal housing markets are also at a moderately higher risk of overheating, as are Hamilton, Ont., Quebec City and Moncton, CMHC said. Overheating happens when there is more demand to buy homes than there are listings.

“The high economic uncertainty and temporary public health and workplace safety restrictions placed on property showings caused a greater number of sellers to exit the market than buyers,” the report noted.

Source: Globe and Mail
Source: Toronto Star

Prices of New Homes in Canada Jump the Most in Three Years as Lumber Costs Rise 

Canadian new home prices recorded their sharpest one-month gain in three years with higher demand and rising costs for building materials. Prices rose 0.5% in August, Statistics Canada said on September 21. That’s the biggest increase since May 2017. Gains were recorded in most of the country’s big metropolitan centres.

The data are consistent with other indicators showing Canada’s housing market hitting new all-time highs in recent months as pent-up demand for homes combines with tight inventory levels and historically low interest rates. The statistics agency said shortages for lumber and other building materials are driving up construction costs this year, a situation it expects will persist. It cited homebuilders as saying record high lumber prices this year will probably add $5,000 (US$3,770) to $10,000 to the cost of a single family home.

Vancouver recorded a 1% gain in August, while Toronto was up 0.3%. From a year earlier, new house prices have increased 2.1%, the largest year-over-year gain since March 2018. The new housing price index measures the change in the sale price of new single, semi-detached and row houses, but excludes condos.

Source: Financial Post

CMHC Reports Annual Pace of Housing Starts in Canada Picked up in August

Builders broke ground on more new homes in August amid a surge in construction on apartments, condos and other types of multiple-unit housing projects in urban centres. The annual pace of housing starts in August rose nearly 7% compared with July, Canada Mortgage and Housing Corp. reported on September 9.

The housing agency said the seasonally adjusted annual rate of housing starts was 262,396 units in August, up from 245,425 units in July. That’s the highest level of housing starts since 2007.

The increase came as the annual pace of urban starts increased 7.1% in August to 248,154. The pace of urban starts of apartments, condos and other types of multiple-unit housing projects climbed 9.1% to 201,214 units, while single-detached urban starts fell 1.0% to 46,940. “Higher multi-family starts in Ontario, including Toronto, drove the national increase,” said Bob Dugan, CMHC’s chief economist, in a statement.

Quebec and Ontario cities led the country in terms of the volume of new homes under construction, with levels jumping 18% and 32%, respectively, compared to August 2019. Ottawa, Regina, and Sherbrooke, Que. saw sizeable jumps in construction compared to August 2019. Cities in Prince Edward Island also saw construction on new homes jump more than 150% in August compared to the same time last year.

Rural starts were estimated at a seasonally adjusted annual rate of 14,242 units.

The six-month moving average of the monthly seasonally adjusted annual rates of housing starts rose to 213,144 in August, up from 204,597 in July. “To say ‘this is a solid level of building activity considering the pandemic,’ and all that, would be a massive understatement,” said Robert Kavcic, senior economist at BMO Capital Markets Economic Research, in a note to clients. “Another very strong showing in August suggests that builders have fully made up any lost time during the spring. Where we go from here is another question.”

Despite August’s construction boom, Dugan said CMHC expects housing starts to trend lower by the end of the year, as the COVID-19 pandemic weighs on the economy and housing sector. Royce Mendes of CIBC Economics said that housing demand from immigration and students has waned, causing rents to fall. 

In turn, Mendes wrote in a client note, investors may become less interested in funding new apartment and condo buildings. “(The) fact that so much of the recent strength has been focused in the multi-unit sector presents a risk,” Mendes wrote. “We continue to see the pace of building activity cooling as the year winds down, particularly as mortgage and other loan payments resume after a period in which many households took advantage of deferrals.”

Source: Toronto Star

CREA Reports Canadian Home Sales Climb Again, Set Record for August

Canada posted record home sales and prices in August, but the increase was uneven, as the housing market levelled off in some regions. Home sales in August climbed 6.2% compared with July to hit a record for the month, with gains led by the Greater Toronto Area and B.C.’s Lower Mainland, the Canadian Real Estate Association said on Tuesday.

Compared with a year ago, sales in August were up 33.5%. CREA noted, however, unlike the countrywide home sales spike in June and July, sales in August were up in about 60% of local markets. 

“One change in August is that some regional disparity is starting to show again, after all markets were rebounding in unison in recent months,” wrote Robert Kavcic, BMO senior economist, in a note to clients. “(Sales) were driven by gains in Toronto and surrounding markets, as well as Vancouver/Victoria, but others like Calgary and Regina have ebbed…We suspect this regional split will re-establish itself as the dust settles.”

The national average home price also set another record in August at more than $586,000, up 18.5% compared with a year ago. Excluding Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive housing markets, lowers the national average price by about $122,000. Ottawa, Montreal and Moncton saw some of the biggest surges in home prices last month, but prices were nearly flat in Calgary, Edmonton and St. John’s, CREA said.

Royal LePage CEO Phil Soper attributed the climbing prices with a housing shortage, calling the 18.5% uptick “unhealthy.” CREA said that it would only take 2.6 months to sell the houses currently on the market, as housing inventory fell to a record low, especially in Ontario.

“Both number of homes people are buying and the number of newly listed homes are rising significantly. This cannot hide the fact that August 2020 was the worst on record for available housing,” Soper said.

After fears about listing their houses during the height of the COVID-19 pandemic, more sellers are returning to the market. CREA said that in August, new supply outpaced the rise in sales for the first time since May.

Home sales in Canada came to a near halt in the spring due to the COVID-19 pandemic, but have surged through the summer, helped by pent up demand and low mortgage rates. CREA said in addition to a record for August it was the sixth-highest monthly sales figure of any month.

The record-busting sales activity means the housing market has caught up to last year’s levels, despite weeks of inactivity this spring. Year-to-date, sales in August were up 0.8% from the first eight months of 2019, CREA said.

But Shaun Cathcart, CREA’s senior economist, said comparing 2020 with 2019 sets a “low bar.” “(The) first half of 2019 wasn’t really anything to write home about,” said Cathcart. “(With) eight months now in the books and activity showing signs of moderating in September, 2020 is looking like it will go down as a fairly middling year overall – weaker than in a non-COVID world but quite a bit better than we would have given it back in April.”

Soper agreed that 2020’s sales numbers look strong, in part, because the 2019 market was “unusually slow” amid a set of new laws that pressured housing for about 18 months, ending last August. Now, 2020 is set to be another extraordinary year, as banks begin collecting deferred mortgage payments and jobless rates threaten to languish for the rest of the year.

“The residual impact of rising unemployment and the end of mortgage deferrals should have a dampening affect demand overall, and bring some balance to the market by the end of the year. The real question is what happens in the spring of 2021,” Soper said.

Source: Toronto Star