Canada’s Home Ownership is Declining While Renting is on the Rise

Canada’s homeownership rate has declined to 66.5% after peaking in 2011 at 69%, according to the latest Statistics Canada data, with the agency acknowledging that people are having a hard time getting off the sidelines. “Trying to figure out the right time to buy is a difficult decision that can leave Canadians wondering how long they want to hold out on entering the real estate market — or whether they even want to,” the agency said in its report.

While the slowdown in home starts and sales continues, home prices had previously increased to such levels that even a major correction may not be enough for most Canadians to enter the market given current interest rates. Adults under the age of 75, especially young millennials aged 25 to 29 years, were less likely to own their home in 2021 than a decade earlier, according to the Statistics Canada report, Portrait of Housing in Canada 2011-2021.

Meanwhile, the growth in renter households has more than doubled the growth of owner households. The agency said renter households grew 21% between 2011 and 2021 compared to the homeownership growth rate of 8.4%.

Housing is still at its most unaffordable level in 30 years — since the height of the housing bubble in the 1980s and the 1990s — according to recent reports by the National Bank of Canada and Royal Bank of Canada.

Nevertheless, Statistics Canada said the number of households that spent more than 30% of their income on housing declined to 20.9% in 2021 from 24% in 2016. The rate of unaffordable housing for renters fell to 33.2% from 40% during the same timeframe, with most of the decline occurring among renters earning below the median renter household income (68.4% in 2016, compared with 56% in 2021).

According to Statistics Canada, Canadians found housing more affordable in 2021 because they had higher incomes, in large part due to pandemic support programs. Even with the broad-based increases in wages and salaries, income inequality increased in the first quarter of 2022 compared to the same quarter in 2021, according to the latest Distributions of Household Economic Accounts estimates.

City dwellers faced the highest unaffordable housing rates. The percentage of renters spending more than 30% of their income on shelter costs in 2021 was above the national average in 33 of 42 large urban downtowns.

“We’re seeing the results of people dropping out of the homeownership game, and they’re moving into rental and there’s just not enough affordable rentals being built,” Cherise Burda, executive director of City Building TMU at Toronto Metropolitan University, said of the current market. “We’re doing something wrong. With all this effort and energy and resources from the national housing strategy, we’re not generating more affordable units. We need to have a really targeted focus for the next several years on building affordable rental because that’s where people are dropping down in the housing ladder, and that’s where we need effort and funding and resources the most.”

More than one-third of dwellings built from 2011 to 2021 were occupied and primarily maintained by millennial renters or owners in 2021, the largest share of any generation. Millennials also represented the largest share of condominium occupants (30.2%).

But Canadian housing starts have declined since Statistics Canada collected the data for its report. The decline in August was 2.8%, to 267,443 units, on a seasonally adjusted annual basis, from 275,158 units in July, according to data released by Canada Mortgage and Housing Corp. The decline comes amid widespread concern about a shortage of housing supply in the country.

Residents of Atlantic Canada have historically been the most likely to be homeowners, and this remained true in 2021 even though rates declined. The largest declines in the country were posted in Prince Edward Island, down to 68.8% from 73.4%, and Nova Scotia, down to 66.8% from 70.8%. British Columbia had the third-largest decline in homeownership (66.8% from 70%), followed by Ontario, which was down to 68.4% from 71.4%. Quebec had the smallest drop (to 59.9% from 61.2%), but still had the lowest homeownership rate in Canada, as has historically been the case. The Northwest Territories had the only increase.

Overall, the agency’s release indicates there is more pressure on the rental market regardless of increased household incomes, leaving the housing industry worried that both rental and homeowner prices are growing out of reach for many.

Source: Financial Post

‘The Correction is Far From Over’: RBC Predicts 14% Home Price Decline by Spring 2023

The Royal Bank of Canada expects home prices to drop 14% below the recent nation-wide peak as homebuyers feel the pinch of higher interest rates. RBC recalibrated its original prediction of 12% to 14% after the Bank of Canada raised its key overnight lending rate by three-quarters of a percentage point Sept. 7.

The “historic correction” is largely attributed to the Bank of Canada’s need to cool inflation which has quickly pushed interest rates to their highest levels since the 2008 financial crisis. With a half percentage point rate hike expected in October, and another quarter percentage point in December, RBC economist Robert Hogue, told the Star that the new calculations take into account the future hikes. 

Home sale activity in August was the quietest in three and a half years, falling for a sixth-straight month. Fewer, and more budget constrained, active buyers in the market are taking steam out of the prices, the report says.

In August, home prices fell by 1.6% month-over-month and 7.4% since the February 2022 peak. The home price decline will continue in the near-term as interest rates climb, the report adds.

RBC also raised its forecast for the policy interest rate to 4% in December, up from the 3.5% previously predicted. The Bank of Canada’s policy rate impacts big bank’s prime rate which variable-rate mortgages are tied to, resulting in higher borrowing costs for homeowners and buyers.

Home prices have fallen significantly in Ontario and B.C. and the market is also softening in Atlantic Canada and Quebec, the report says. Historically, higher demand has been concentrated in Ontario and B.C. but smaller cities including Montreal and Halifax have seen more interprovincial migration in recent years, driving demand and straining supply.

“Interest rate hikes impact everyone, no province is entirely sheltered,” Hogue said, but regions with expensive properties, like the GTA and Vancouver, are more sensitive to rate hikes because of higher mortgage debt… We do expect price declines through out the country but in different magnitudes,” he added.

Ontario and B.C.’s home prices will decline by 16% in spring 2023, whereas Alberta and Saskatchewan will see a 4% drop, the report says.

Another factor impacting falling home prices are mortgage pre-approvals, which are propping up the market, said Robert Kavcic, senior economist at BMO. Often, homebuyers are pre-approved for a mortgage — a borrower secures a rate for typically 90 to 120 days, while shopping for a home. That means, if someone was pre-approved in June, when the average five-year fixed rate was 3.59%, they will not be hit with the higher borrowing costs as rates are now more than 4.5%. Current home sales fail to reflect current mortgage rates, since many homebuyers secured their interest rates months ago, which is why home prices won’t bottom out until spring 2023, says Kavcic.

Philip Cross, senior fellow at the Macdonald-Laurier Institute and former chief economic analyst at Statistics Canada, said while RBC’s new forecast is more reflective of the market, he sees home prices dropping by at least 20%. As the RBC report notes, home prices are still higher than a year ago when the country was in a housing bubble meaning home prices are still unaffordable for many and have even further to fall, he added.

Last week, Jerome Powell, chair of the U.S. Federal Reserve Board said he is “strongly committed” to fighting inflation, indicating that high interest rates will be around for “longer than people think, making things worse for the housing market,” Cross said. Because of this, Cross predicts home prices will be the lowest by the end of 2023, not the spring. “The correction is far from being over. It will be more prolonged and steeper than predicted.”

Source: The Star

Average Home Sale Price in Canada to Fall 2.2% This Fall, Re/max Report Forecasts

A report by Re/Max Canada forecasts the national average home sale price in Canada will fall 2.2% in the final months of the year. The network of real estate brokers and agents said that the moderation in the market for the September-to-December period comes amid rising interest rates, record inflation and broader global and economic uncertainties.

Mortgage rates have risen sharply this year, raising the cost of borrowing for potential buyers. Re/Max Canada president Christopher Alexander said many markets are experiencing softer sales given the recent interest rate hikes. “This provides some reprieve from the unprecedented demand and unsustainable price increases we’ve seen across Canada through 2021 and in early 2022,” Alexander said in a statement. “However, the current lull in the market is only temporary. Until housing supply increases, these ‘boom’ and ‘bust’ cycles will likely be a recurring event.”

Prices in Metro Vancouver are expected to decline 3.0%, while the Greater Toronto Area is forecast to fall 6.3%. Winnipeg is expected to drop 8.0%.

However, the drop in prices in the final months of 2022 isn’t expected to be universal. The report said seven out of the 30 markets analyzed are likely to experience modest price appreciation between 1.5% and 7%.

Calgary is expected to rise 3.0%, while Edmonton is forecast to gain 1.5%. St. John’s, N.L., is predicted to gain 7.0%.

The report follows a move by the Canadian Real Estate Association earlier in September to cut its forecast for home sales this year and lower its expectations for price growth. CREA is expecting 532,545 properties to trade hands via Canadian MLS systems this year, down 20% from the 2021 annual record, while sales are expected to drop another 2.3% in 2023.

The association also forecasts the national average home price is forecast to rise by 4.7% on an annual basis 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.

Source: Globe and Mail